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

We all know when setting up our self-funded insurance plan that we are contracting 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. Did you and your broker really ever understand them? When was the last time you did a thorough market analysis, and truly understood how the administrator and your broker are compensated? I recently spoke with a prospect who asked me to perform such an analysis and here are the results:

Case Study:

  • Stop Loss Commission: There was 15% commission built into the stop loss premiums that were paid directly to the administrator (plus a 1% override). We removed the commission and saved nearly 19%, based on a little known concept that by removing all commission, reserve requirements also decrease. Based on the analysis 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 received administrative service fees on the high end for administration of dental, vision, COBRA and other non-medical services.   The medical administration was a completely different story, where the customer was paying fees nearly 150% of industry standards. 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: We found there was significant additional hourly billing for case and disease management. 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. In my opinion finding a PEPM fee is a much better route.

Our analysis showed considerable flaws in this particular self-funded plan, making us wonder why the broker and administrator were not providing better transparency and sound advice. Based on our analysis, the company hired our firm and we were able to save them about 25% on fixed cost at renewal. At next renewal, we will 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.

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. And as always, if you have a question regarding this post please do not hesitate to reach out to myself or your OneDigital consultant.



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