As a roofing company owner, you currently face several pressing challenges: workforce shortages, supply chain issues and the COVID-19 pandemic’s effects. But one perennial challenge is what benefits to offer your employees, and health care solutions are some of the most important—and misunderstood.
A “new” option
As you know, there are numerous health care options available, and finding the right fit for your company can be confusing and overwhelming. NRCA recently partnered with Vault Health Strategies, Bloomington, Ill., to launch the NRCA Health Care Program, which is designed to help NRCA members find the right health care solutions for their companies. And one of those solutions is a self-funded health care plan.
Self-funded plans (also known as administrative services only plans) were introduced in 1970 as an alternative to fully insured plans.
Self-funded insurance is not new; however, most small businesses, such as those in the roofing industry, aren’t aware of this option much less take advantage of it when it is available to them.
According to the Kaiser Family Foundation: “61% of all covered employees in the U.S. are covered by self-funded plans while 81% of companies over 200 employees are self-funded.”
To understand why your company should consider a self-funded plan, you need to understand the key differences between fully insured and self-funded plans.
With a fully insured plan, the employer pays a preset fixed monthly premium and all the claim liability rests with the insurance carrier. However, the employer is provided little transparency into the cost breakdown.
For instance, carriers generally are not required to show employers how much of their premiums are allocated to items such as projected medical and pharmacy claims, operating expenses, administration fees for claims processing, medical management, and facility and prescription network usage. Additionally, carriers with fully insured plans must pay applicable state premium taxes, which can range from 2%-3% of the premium dollar amount, and often bury these costs in the premiums as well as other costly state-required coverage mandates, which can add another 5%-7%, depending on the state. Carriers also add a profit margin to employers’ plan costs.
Adding all this up, it is no surprise to see how carriers that offer fully insured plans where they are allowed to keep any unused premium dollars can realize profits as high as 20% at the end of a given plan year!
Self-funded plans operate under the same basic principles as fully insured plans. Importantly, employers in the self-funded model are financially responsible for claims incurred by employees; however, their ultimate liability is protected by stop-loss insurance (described below), which keeps this risk quite manageable. Under this type of plan, employers can benefit from improved transparency into savings from the plan’s cost allocations.
To successfully create and manage a comprehensive health care plan, migrate associated risk and ensure the insurance plan meets employees’ needs, a self-insured employer will need to contract with other entities to help manage the plan. One option is through bundled self-insured programs available from the same brand-name carriers that offer fully insured programs.
These carriers offer self-funded plans as a solution to help employers reduce their overall health care spend. With this structure, large insurance companies “bundle” their provider contacts and network(s), use their own pharmacy benefit processes, handle claims and take profit from these and other services. This does drive up employer costs; however, there can be some savings from unused claim dollars that are returned to the employer, which is in stark contrast to fully insured plans.
In this case, an employer contracts with a single entity to provide all plan-related administrative services. Although the employer will have more visibility into the cost of claims under a self-funded model, the carrier still is in control.
The other option is the unbundled self-funded plan, which, in my opinion, offers the best services and efficient health care spending to employers. Unlike bundled administrative services only plans, unbundled self-funded plans have higher levels of efficiencies in each function of plan administration, including claim adjudication service, pharmacy benefit manager, stop-loss insurance carrier, and other specialty programs specific to the client or industry.
However, if an employer implements an unbundled self-funded plan, the employer will contract with a third-party administrator to administer the plan. Because the employer is funding claims through a third-party administrator, the employer avoids much of the associated fully funded insurance costs mentioned earlier, including state premium taxes, some administrative costs and excessive profit margins. Importantly, the employer retains the unused claims money as reserves, which can be used to offset future years’ program costs, reducing annual cash outlay.
In addition, the third-party administrator assists with plan design; production of the plan document; selection of the pharmacy benefit manager; and coordination of the stop-loss policy, which mitigates shock claims and caps the employer’s risk associated with sponsoring its own health care plan. This provides much more control to the employer than the fully funded and bundled self-funded options.
Generally, stop-loss insurance includes two types of coverages. One is known as individual stop loss, which protects the employer and plan against large claims incurred by individuals by creating a payment threshold known as the “specific deductible.” If any single claimant goes over the determined threshold amount, the individual stop loss kicks in to reimburse the plan for claims paid beyond the deductible amount.
The other type of stop-loss coverage is known as aggregate stop loss, and it provides the same protection as individual stop loss but for an aggregation of smaller claims that add up to a total threshold amount rather than a handful of extreme ones. Aggregate stop loss kicks in once the total of claims reaches the predetermined benchmark, after which claims paid by the plan that exceed the total threshold are reimbursed to the plan. This might initially sound like a lot of moving pieces, but all vendors are fully integrated and provide seamless coordination to ensure an optimal experience for employers and employees.
With fully insured plans, employers pay a preset fixed monthly premium and all the claims’ liability under the health plan rests with the carrier. Carriers generally are not required to show employers how their premiums are allocated. Any unused claim dollars are kept by the insurance carrier.
With a self-funded plan, if an employer’s total claims are less than the total expected claims liability (similar to the total premiums paid to a fully insured carrier), the employer is not obligated to make any additional payments; in other words, the employer gets to keep the unused premium dollars.
How to switch
As you consider your health care options, your biggest concern should be understanding and mitigating risks. To this end, information and transparency are critical. Information about your employees, the true cost of health care services and mechanisms to cap your liabilities all are required for you to make an informed business decision.
During the past year, Vault Health Strategies spent a considerable amount of time consulting with many NRCA members and learned the largest barrier to moving companies from preliminary analysis to fully underwritten proposals in the NRCA Health Care Program was contractors’ and brokers’ limited knowledge about self funding and the work required from members and their brokers to gather personal health information about employees and/or actual claims data from their current plans.
To ease the process, Vault Health Strategies has made changes to the enrollment process so fewer things are needed to complete a detailed analysis for underwriting. Required documents now include a complete employee census report, a two-page employer questionnaire, copies of a company’s current plan, and a copy of the most recent wage and tax filing. Vault Health Strategies is an insurance company, not a brokerage firm. As such, it prefers to work with a company’s current broker; however, if a company does not have one or is considering a change, Vault Health Strategies can provide this service.
It is important to note traditional fully insured plans are valid for 12 months. If your firm is currently in a fully insured program, be aware that making a move to a self-funded strategy can occur at any time during the year—you do not have to wait for the renewal period. The process takes at least two months, which should be factored in to allow enough time to complete it.
For more information, go to nrcahealth.com.
PLANS BY THE NUMBERS
If an employer pays $1 million in health insurance premiums, the following scenarios are possible:
Fully insured plan
Self-funded and administrative services only plans
NRCA’s unbundled self-funded plans