Small Group Self-Funding Trends

97354451Trading dollars with an insurance company is a zero sum game. Their actuaries and underwriters raison d’etre will  guarantee it! You know who owns most of the large office buildings in any metropolitan area. Yes, when you experience a large loss, be it medical, real property or life, it is reassuring to know that the financial element of the loss will be covered. However, unless you have a  huge catastrophic loss, you have paid for it anyway. Modern Healthcare, a leading health industry trade journal, published its annual executive compensation survey this week. Topping the list is Stephen Hemsley of United Health Group, his take for 2011, $106 million — $7.5 million in salary and benefits and $98.5 million in stock options. Mr. Hemsley is not alone. The CEOs at insurance giants Cigna, Humana, Aetna, Coventry Health Systems and WellPoint all took home between $10 million and about $18 million. Many of those companies already have announced double-digit premium increases for next year. These facts confirm that all of us Self-Fund 99% of ours losses in every aspect of our lives and businesses.  The spiraling premiums we pay, lack of claims we make and the additional exposure we take on mandate it.

Also, let’s take a look at the trends over the past decade. Health insurance premiums have increased 500% while counter intuitively deductibles, co-insurance and co-pays have escalated dramatically. Ironically, this has transpired in an environment where networks are discounting cost 15-45%! Doesn’t make sense does it? A subtle, almost imperceptible shifting of exposure has occurred. To this point, the tactics that most companies have employed have been:

  1. Increase deductible and co-pays
  2. Shift costs to employees
  3. Change plans annually ( spreading sheeting by brokers) in an attempt to mitigate the madness.

One of the many challenges small employers face in managing their second highest cost of doing business is lack of data. Imagine, today, in the information age, you do not have access to how your company consumes healthcare! This is why small employers are relegated to tactical versus strategic actions. In Sun Tsu’s book, The Art of War, he writes that the general who has the most information can prevent war or win it if he must. You do not have the information you need!

How much premium did you pay last year? How much benefit was paid? How about in the last 5, 10, 15 years. This information would floor you. These trends are negatively impacting your business and company culture and you can’t access it. Self-Funding changes the funding dynamic and cants it in your favor, while providing the data you need to make an informed decision. Plan designs are plan designs. Networks are networks. Changing the way you fund them will shift the control back to you where it belongs. It is not a quick fix or cure all, but rather a long term solution that stacks the odds in your favor.

We at EAG encourage small employers to participate in the assessment process. Get the information you need to be strategic not tactical with your employee benefit decisions. If you are a small to mid-market broker, we encourage you to let us show you how you can bring this value proposition to your clients. Your willingness to do the work will differentiate you from the spread sheet herd.

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