by Mike Bechtol, Redirect Health

Interest in self-funded healthcare has skyrocketed in recent years, but so have misconceptions and bad information about this healthcare option for businesses.

For many subcontractors, self-insurance seems a perfect solution to their healthcare challenge. The model seems custom-built for contracting workforces—benefits are flexible, costs are low, and workers’ compensation costs are minimized—but many employers have questions about self-funding and are hesitant to adopt this method.

Here, we address common myths and misconceptions about self-insurance to provide a clear snapshot of how the model works for construction industry businesses.

“I don’t know how self-funding would work in my business.”

In a self-funded health plan, businesses create their own benefit plan for their employees, pay health claims directly, or work with a third-party administrator (TPA) to manage the plan. Self-insurance benefits can include medical, chiropractic, dental, vision, prescription medications and workers’ compensation.

Businesses also have the option to customize benefits according to the needs of their employees. For example, an employer with a young workforce may choose to offer comprehensive family planning benefits, while a construction firm may opt for injury care. This level of flexibility simply isn’t available in fully-funded plans.

For employees, a self-funded health plan may look and operate exactly the same as a traditional insurance plan.

“It’s too time-consuming to implement and manage a self-funded plan.”

It may seem difficult from the outside, but self-insurance is typically more manageable than traditional insurance plans. Costs are easy to control, and administration is streamlined and simple.

Most companies hire a third-party administrator to manage their self-funded health plan. TPAs handle the bulk of the administration: they collect monthly premiums, pay health claims, communicate with employees about claims, and report back to the employer on the performance of the plan.

In many ways, the administration is similar to a traditional insurance plan. But, there’s one critical difference: with a traditional plan, the insurance carrier collects and keeps the money. With self-funding, the TPA keeps the funds in the company’s claims bucket. The money benefits the business—it doesn’t go to back into the profits of the insurer.

Moreover, TPAs provide monthly utilization reports to the business owner, allowing him or her to see how the claims dollars are being spent, identify any red flags (e.g., inflated pharmacy costs), and to make adjustments as needed.

“My healthcare costs will go up.”

This myth is particularly pervasive, but easily exposed.

With traditional, fully funded medical plans, employers have very little, if any, control over healthcare spending. Rates go up every year—even if utilization goes down. A business owner wouldn’t accept a 10 percent, or more, annual increase on the cost of materials or supplies—why should he or she agree to big increase in the cost of health insurance?

With self-funding, employers maintain a high level of control over their costs. Among the tools for keeping costs in check:

• Stop-loss insurance: With a smart self-insurance plan, the company covers health services up to a certain dollar amount; stop-loss kicks in if health claims exceed that cap. For example, if an employee is injured in a bad accident, stop-loss ensures the employee receives the healthcare he or she needs while protecting the business’ bottom line.
• Employee education: Consider that an MRI costs $4,000 at a hospital, but just $400 at an independent imaging center—with absolutely no difference in quality. In fact, hospitals charge five to 20 times as much as offsite clinics for identical services—things like blood tests, X-rays and other common procedures. Why would anyone choose to go to a hospital for a non-emergent issue if they understand the difference in price?

The same is true of prescription prices. A common antibiotic might cost $40 at a corner store pharmacy, but just $10 at a supermarket pharmacy. For a company that fills 500 prescriptions each year, simply switching pharmacies can add up to $15,000 in savings.

Simply educating employees on factors that impact costs will help keep claims in check.

• Workers’ Comp: For contractors, self-funding can bring down workers’ comp costs by providing lower-wage employees with an affordable place to get healthcare.

Consider that many workers—particularly those who earn less than $15 an hour—don’t have any healthcare except workers’ compensation. Sometimes these employees file workers’ comp claims for injuries sustained outside the workplace—simply because they don’t have money to pay for the care they need. A smart self-funded plan provides routine healthcare services at low or no cost, removing barriers for low-wage employees.

As a result, workers’ comp costs go down and EMOD scores improve. It’s a win-win.

• Extra funds: With self-funded healthcare, employers don’t pre-pay for coverage—they pay only when claims are incurred. In addition, they keep any extra money they’ve put into their claims bucket at year’s end. With traditional insurance, the carrier keeps all of the money the business has paid into the plan, even if the money they paid far exceeded their claims.

Likewise, businesses don’t bear the burden for insurance companies’ marketing costs or profit margins, a savings estimated at 10 percent to 25 percent in non-claims expenses. Self-funded plans are also exempt from state health insurance premium taxes—which typically cost 3 percent of the total premium dollar value of a traditional plan. The company gets these extra funds.

“My employees will be unhappy.”

With a smart self-funded plan, employee satisfaction will likely improve dramatically.

To fully leverage the benefits, many companies choose to partner with an affordable healthcare provider to help their employees navigate the system and access care, while protecting the company from overpaying for services. The partner provides a concierge-level of service to ensure employees get the right care at the best price.

For businesses, this means lower costs. For workers, it’s a simple, convenient and satisfying healthcare interaction—a tremendous difference from most people’s experience of healthcare.

Mike Bechtol is director of Care Logistics for Redirect Health. For more information about self-funded healthcare for subcontractors, or visit redirecthealth.com/asa or call Redirect Health at (888) 995-4945 or email nextsteps@redirecthealth.com.