Is Self-Funding Right for Your Business?

How USI’s Expertise Makes a Difference!

The prospect of switching a fully insured employee benefit plan to a total or partial self-funding strategy, or even unbundling certain benefits, is still greeted with anxiety in many corporate boardrooms and HR departments where such measures are often viewed as disruptive and burdensome.

However, in the post-Affordable Care Act environment, where many employers are scaling back richer benefit plans and seeking to cut the fees and tax implications associated with insured programs, an increasing number of middle-market companies are considering alternative financing strategies that allow better control of plan design and cost.

Every employer that is concerned about their health care cost should assess whether a self-funded plan is the right option for them. While it may not be the right fit for every employer, having a thorough understanding of the mechanics, benefits and risks of this alternative financing option gives the plan sponsor a better appreciation of what’s currently driving plan costs, empowering them as purchasers and consumers of health care.

That is where USI Insurance Services comes in! With our proprietary USI ONE Advantage(TM) process, plan sponsors are now able to decide with confidence whether self-funding is the right solution for them.

You Can’t Manage What You Can’t Measure
Based on decades of research and experience designing employee benefit plans for middle-market clients, USI has developed an easy-to-use process that allows plan sponsors to assess whether their plan is a viable candidate for self-funding. The key questions every employer needs to consider at the onset of the process are:
– How are you financing your current health care benefits program?
– Is it providing the results you need?
– Does your current benefit program provide your employees what they are asking for?
– Are you paying for benefits your employees are not utilizing or even need?
– Do you have access to the data and information that can help you strategically manage the direction of your healthcare spend?
– Are you comfortable self-funding to gain greater certainty around costs?

Walking Hand-in-Hand with USI
USI benefits advisors are engaging many clients in a step-by-step process to evaluate the feasibility of the self-funded alternative. Our experts are able to provide detailed analysis of a company’s ability to financially support a self-funded program, evaluate their risk tolerance, offer plan structure options, and when necessary, lead in the development and implementation of a multi-year arrangement.

USI offers these solutions to employers considering self-funding:
– Detailed analysis of state premium and ACA fee and tax implications of fully insured versus self-funded plans
– Identify opportunities to reduce carrier profit margins within fully insured plans
– Establish appropriate funding level and plan design
– Complete review of contract terms to ensure sustainability of the self-funded plan

USI’s partnership with clients continues after they switch to a self-funding option. Ongoing support includes population health management to help companies reduce paid claims. We understand that managing the process requires a seasoned and dedicated team of professionals committed to monitoring and managing all aspects of the arrangement.

Switching Saves You Money
USI advisors are finding that many brokers do not fully explain how additional fees and taxes under the Affordable Care Act have created a potential pricing advantage for self-funded plans. This is disconcerting considering our analysis shows most insured employers could realize 5-to-7% savings by moving to a self-funded plan. In some cases the savings are higher if the employer unbundles administration, stop-loss, pharmacy and medical management.

For example, depending on the state, the typical benefit or net savings from avoiding certain state mandates and state premium taxes through a self-funded plan could be as much as 2.5% of premium. In addition, plan sponsors could benefit from up to 5% of premium by eliminating carrier margins and 2.5% by avoiding additional pass-through taxes associated with the Affordable Care Act.

The Success Stories of Self-Funding
USI’s benefits team has partnered with hundreds of employers on the journey to self-funding. Companies with as few as one hundred employees to companies with several thousand employees have benefited from USI’s expertise and breadth of resources in this arena. A recent success story involved a 250-life Silicon Valley-based biotechnology firm that, although frustrated by perpetual double-digit rate increases, was reluctant to embrace self-funding or any similar type of arrangement. Even worse, the company’s incumbent carrier had declined to provide access to claims experience and was uncompetitive when asked to quote self-funding alternatives.

When USI was invited to assist the company in evaluating its options, the advisors started by conducting a demographic analysis and identified a lower average age of the workforce. The team also reviewed a range of cost reduction solutions that could be best achieved under a self-funding contract. USI initiated the funding conversion and negotiated a conservative attachment level, offering the lowest maximum liability possible to ease the concerns of the company’s management and human resource officers.

Ultimately USI was able to reduce the biotech company’s client retention charges by 17% by marketing the program to alternative carriers and third-party administrators. In the first year alone, a reduction in administrative costs and improved cash flow resulted in total savings of 17%, and the company also realized an 11% decline in claims costs on a mature basis. Overall savings for the company totaled $296,500.

This is one of many success stories that USI benefits advisors are sharing with employers all over the country. To find out if a total or partial self-funding strategy is right for you contact your USI benefits advisor.

 

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