Self-funded plans – How much can you really save?

We talk a lot about how much money you can save by self-funding your health plans, but when it comes to the dollars and cents, how much can you really save? Here is a scenario from one our actual clients. We’ve changed the company name for privacy.

ABC Hospitality has 139 individuals and is currently fully insured with a “fully insured” carrier.

  • Current Premium $650,000 annually.
  • Claims experience shows that only 40% of ABC’s annual health insurance premium is due to claims.

If ABC Hospitality, sets up its own Self-Funded Major Medical Plan, with a PPO, and better administration, why can’t they then retain the excess funding instead of paying it to the fully insured carrier?

Partially Self-Funded Healthcare Quote with Reinsurance for ABC Hospitality:

Specific Deductible: $25,000.00

Specific Contract Period: Incurred from [1/1/16] through [12/31/16], paid through [3/31/17]

Aggregate Contract Period: Incurred from [1/1/16] through [12/31/16], paid through [3/31/17]

Fixed Costs

Employee Only - $204.50

Family

Monthly fixed costs

96 Covered

43 Covered

$19,632.00

$8,793.50

$28,425.50

Maximum Claim Factors/Costs: (Aggregate Factors)

Employee Only - $212.97

Family

Monthly fixed costs (aggregate attachment point)     

96 Covered

43 Covered

$20,445.12

$9,157.71

$29,602.83

Conventional Equivalents: (total maximum monthly costs)

Employee Only  - $417.47

Family   

Total Maximum Monthly Costs    

96 Covered

43 Covered

$40,077.12

$17,951.21

$58,028.33

Maximum Annual Plan Year Cost (worst case scenario)  

$696,339.96

Fixed Costs includes: I.D. Cards & Electronic Provider Directories, Plan Document, Employee Only Booklets, Aggregate & Specific Reinsurance, Monthly Accommodation, TPA Admin Fee, PPO, HIPAA, EDI, Cobra & utilization review.

ABC’s worst case scenario is $696,339.16, ABC must reserve $58,028.33 monthly for claims. But this is only in a worst case scenario, which is rare. This can only happen with everything goes wrong with the self-funded plans and there are catastrophic medical conditions and illnesses.

Analysis: While ABC’s self-funded rates took a slight increase over this year’s premiums, they were facing a potential 6% increase from their current carrier. As you can see, the self-funded quote is slightly higher but if you analyze their claims trend over the past year, ABC Hospitability has the potential to get $166,788.00 back in claims funding.

Note: Not only can an employer potentially save money on their returned claims but they can roll their 1st years self-funded savings into reserves for their second year. When they increase their reserves, they can afford to take on more risk which lowers their fixed costs each and every year. This leads to an even greater reduction in their overall costs.

As you can see, the potential amount an employer can save can be significant but it also enables an employer to have more control over plans. A common misconception is that control only means you get to design your own benefits but you can also structure your plan to pay in different ways and incentivize employees to catch billing errors and lead healthier lifestyles. Let’s start the process today and get you and your clients self-funded.

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