Many employers think that being self-insured is only for large, thriving organizations. Not so, says Joe Berardo, CEO of MagnaCare, a company that manages health plans for employers in New York and New Jersey. He believes it can work well for companies with as few as 15 employees.
What’s changed for employers since the Affordable Care Act (ACA)? Although the ACA has not yet done much of anything to reduce healthcare costs, it does increase the benefits of self-funding, says Berardo. There are two reasons for this: First, under healthcare reform, plans can no longer cap medical benefits beyond a certain level. Self-insured companies faced with this barrier can call on stop-loss carriers, whereas the carriers for fully insured organizations absorb those losses—and then charge the employer more the following year.
Second, most fully insured organizations pay brokers’ fees, which became very difficult under ACA beginning in January 2011. ACA requires specific medical-loss ratios: For group plans, 80 cents of every premium dollar must be spent on medical expenses rather than administrative costs, while for individual plans, the ratio is higher—85 cents of every dollar. So what happens to those brokers’ commissions? Especially when, Berardo notes, brokers were pretty much guaranteed an annual raise as healthcare costs went up every year. If the commissions are part of the administrative component of the premium, they eat into the profits of a fully insured plan.
There are more advantages to self-funding. One might call those two ACA changes “sticks” in the sense that they goad companies to self-insure. But, Berardo advises, there are also “carrots” in the mix. Here’s a big one: In years when premiums exceed medical costs for plan participants, the self-funded organization can keep the difference. By contrast, the carrier for a fully insured plan would retain the extra funds as additional profit.
Another big advantage, from Berardo’s point of view, is that the company managing a self-funded plan can gather patient-specific information and put it to work for effective disease management and wellness. A plan management company like MagnaCare tracks patients with chronic diseases to monitor their medication refills, periodic tests, and visits to their primary care providers.
Let’s say an employee is diabetic. He or she is reordering medication at the appropriate intervals but is not keeping up with blood-glucose testing. The plan manager contacts the employee’s primary care physician to alert the doctor that more frequent testing is needed. Medical interventions like those can help keep patients out of hospitals and avoid further deterioration in their conditions. This method also keeps the employer out of the loop, so that it avoids knowing about the private health information of its employees.