Better Benefits
44% of Health Plan Sponsors Haven’t Taken the First Step to Control Costs
44% of Health Plan Sponsors Haven’t Taken the First Step to Control Costs
Insurance models previously considered “too risky” are now becoming financially prudent – especially for small to mid-sized employers.
It’s no secret that the health insurance marketplace in America is deteriorating. Health plan costs are rising faster than inflation, wages, revenues, and profits, which means that both plan sponsors and members are shouldering a proportionally greater financial burden with every new premium hike. This enormous siphoning of wealth away from employers and employees is causing a significant financial strain and leaving less capital available for other core needs.
Unsurprisingly, public discontent has risen in tandem with healthcare prices, and Americans of all stripes are fed up with the status quo. This discontent has brought employers to an inflection point, with many organizations now exploring changes to their health plan models that previously would have been considered “too risky.” The most noteworthy of these is the migration away from traditional fully insured plans and towards self-insurance.
Surging health plan premiums are causing financial strain and leaving less capital available for other business needs.
According to the most recent Annual Report on Self-Insured Group Health Plans, released annually by the U.S. Department of Labor, 56% of private-sector employers who filed a Form 5500 are self-insured. While 56% is quite significant, this statistic also highlights a major opportunity for the other half of the American workforce: now is the time for the remaining 44% of employers to seriously evaluate self-funding, which is the first major step necessary to break free from the status quo and regain control over benefits spending.
The Three Major Ways Companies Can Finance Health Plans
At a high level, all health plans can be sorted into one of three funding models:
1. Fully Insured Plans
In this model, employers transfer risk to the medical carrier. They outsource all plan management to the carrier for a fee and have limited access to plan expenditure data. Monthly expenses are predictable, and liability is capped. Essentially, the employer pays monthly premiums, and the carrier pays the claims.
2. Level Funded Plans
Similar to fully insured plans, level funded plans offer limited liability with some potential for cost recovery if utilization is lower than expected.
3. Self-Funded Plans
This is where the greatest cost-saving opportunities lie. Self-funded plans offer the highest level of customization and control, but also come with greater financial risk. Instead of traditional carriers, employers manage the various aspects of the plan themselves and assume financial responsibility. The benefits include retaining any savings from lower-than-expected usage, making this option appealing for those frustrated with rising premiums and the status quo.
For employers tired of the status quo and feeling powerless against annual premium hikes, self-funded plans deserve serious consideration. It’s important to note that only 3% of employers across the U.S. employ more than 100 employees. This means that the majority of our workforce is employed by small businesses. This also means that many of those small businesses are leaving money on the table each year by remaining fully insured. Many small employers might think they are “too small” for self-funded options, but this piece of conventional wisdom is simply no longer true in the face of surging health costs and new innovations in the marketplace.
Why Small Employers Should Give Group Captives a Chance
In 2025 and beyond, there is a tremendous opportunity for small to mid-sized employers to switch to a type of self-funding called a Group Health Insurance Captive. A 4aptive is a strategic healthcare funding arrangement between multiple like-minded employers. To participate in a captive, employers must either already be self-funded or prepared to go self-funded. Together, these employers can pool their risk, leverage economies of scale, and create and administer their own high-performing, self-funded health plan. This sharing of responsibility means that captives are less risky and come with a lower administrative burden than traditional self-funded plans operated by a single employer.
Whereas employers used to be afraid to change, they should now be more afraid to stay the same.
The major factor that has historically stopped more employers from embracing captives and other similarly innovative solutions is simple: a fear of change. In the past, the high level of financial protection and total outsourcing of plan management under fully-insured models was worth the irritation of marginally higher premium prices. Nowadays, this cost-benefit analysis has been flipped on its head. Whereas employers used to be afraid to change, they should now be more afraid to stay the same.
The fully insured cycle of year-over-year cost increases is reaching unsustainable levels, and it’s time for businesses to take back control of their budgets. Today, when considering a move towards self-funding, the question that CFOs and other people leaders should be asking themselves is “What’s the worst that could happen?” At the very least, working with a provider to run a financial model of alternative funding solutions is a basic step that should be considered by all fully insured plan sponsors. If the results come back negative, then at least due diligence has been performed, and stakeholders can be confident that they are getting the least bad deal. However, if the results show that significant cost savings may be achieved with a switch to self-funding, the results could pay literal dividends for years on end.
Want the full scoop on how employers can push back against premium hikes? Check out the Cost Containment Playbook.