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Self-Funding – It’s Supposed To Save You Money, But Are You Still Paying Too Much?

When setting up a self-funded insurance plan, it's common practice to contract with an administrator, network and stop loss carrier. There is also typically information about case and disease management, prior authorization, out-of-network charges, and other various fees. Before diving in and making changes, did you or your broker conduct a thorough market analysis, and truly understand how the administrator and your broker are compensated? If not, you could be paying a substantial amount in fees, that could ultimately cancel out the intended savings your self-funded plan would have created. Here is an example of the fees that you could be overpaying for:

  • Stop Loss Commission: A 15% commission could be built into the stop loss premiums that are paid directly to the administrator (plus a 1% override). By removing this commission, you could save nearly 19%, based on a little-known concept that by removing all commission, reserve requirements also decrease. When working with a recent client, based on the analysis shared of the next two administrative charges, the administrator did not balk at the group keeping all of the savings generated. In addition, we took about 15% of the savings and purchased a more comprehensive stop loss contract thereby replacing the current contract which had created dangerous gaps year to year.
  • Administration Fees: The administrator can receive service fees on the high end for administration of dental, vision, COBRA and other non-medical services. In a recent analysis, we discovered a customer was paying fees nearly 150% of industry standards on their medical administration. The pricing, a per claim charge, was disclosed on the administrative agreement, however, the actual costs were masked in the claim billing and reporting. We were able to negotiate a fixed per employee per month (PEPM) fee saving the customer considerable money and creating better transparency.
  • Case and Disease Management Fees: A significant additional hourly billing for case and disease management could be added to your fees. This practice is used commonly, but most administrators use it sparingly. In some cases the administrator does not have direct control of this process and actually profits from it. Finding a PEPM fee is typically a much better route.

Before making any significant moves, ensure your broker takes a thorough review of all fees and clearly discloses them. During renewals, leverage administrative and stop loss partners to save an additional 15%-20% in fixed cost, as well as, 15% savings in claim cost through better network contracts.

Unfortunately, the above scenario is not uncommon in today’s health and benefits landscape—and begs the question—is your self-funding arrangement really saving you money? If you and your broker haven’t reviewed your approach it may be time. Contact your OneDigital consultant to discuss your options and to familiarize yourself with how to maximize your investments.