Most of our readers already know, there are two options that employers and other health care purchasers can choose to fund health care benefits. Fully insured employers pay premiums to a health plan, who takes on the risk associated with covering the health care services and costs incurred by the company’s population and administers the benefit. Self-funded employers cover the costs of employees’ health care services, but turn to a health plan for administration.
How do employers know which model is right? Over 80% of large employers (i.e., more than 500 employees) opt to self-fund their populations’ health care, as they are large enough to have the capital to pay the cost of claims. It is typically less expensive to self-fund than pay a health plan a premium for every employee. And by choosing to be self-funded, they have more control over customizing health care benefits and better access to data on spending.
The self-funded model is riskier and more expensive for smaller companies, but data indicates that more small and mid-size employers are getting into the game of self-insurance, too. A 2016 Employee Benefit Research Institute (EBRI) Report showed that between 2013 and 2015, the number of mid-size employers who self-fund grew by 20%. The number of small employers grew by 7%.
Why? This is likely a result of the rising health care premiums that fully-insured employers are subjected to. As premiums increase across the board, companies may have better luck controlling health care spending by becoming self-insured and looking to strategies that lead to higher-value health care. In that case, they will only be paying for the care of their population and have the ability to focus on keeping their population healthy and out of the hospital. Companies with more passive strategies will continue to be impacted.
It is a trend worth tracking as it changes the strategies available to these employers to push their health plan partners for payment reform, price and quality transparency, and access to data among other things.
SPOTLIGHT! Learn how a small employer, Aircraft Gear Corporation, worked to mitigate cost trend by being self-funded, in CPR’s Employer Case Study. Aircraft Gear Corporation had the flexibility to design a near-site clinic to provide its employees with better access to primary care.