As the founder of a technology company whose business is to help smaller companies save time and money on their health care, I’m often surprised by the amount of misinformation I see related to benefits. I recently came across an article in which the author argues that self funding health benefits could kill your company. True, if you try to self insure your business without the help of a broker (or at least armed with some expertise in the matter), you’ll likely make some costly mistakes.
But you wouldn’t try to tackle your company’s taxes if you don’t have an accounting background, would you?
That said, to suggest that self funding health benefits could cripple your company is simply misguided. Given the rising cost of healthcare, going the self insurance route is becoming increasingly more attractive to smaller companies just like yours.
Broadly speaking, there are three self insurance funding structures that you can use:
- Completely self insured
- Partially self insured (aka level funded)
- Self insured via a managed captive
But it’s the innovation around options two and three that are making it easy for small companies to self insure.
The above-mentioned article highlights the risk of getting a large claim for an unforeseen health issue such as an obscure cancer diagnosis. In these circumstances, he argues, your company is on the hook to pay the claim because the stop loss carrier would cancel the policy or not renew the policy at the end of the year.
Certainly, this could instill some fear, but let’s isolate these two scenarios:
1. Stop loss carrier cancels the policy midway throughout the year.
If you’re working with a broker who’s familiar with self insurance plans, this just won’t happen. You won’t be put on a policy that allows a stop loss carrier to cancel mid-year. But let’s say that hypothetically, it does happen. The stop loss carrier cancels your policy mid year — they’ll have to give notice of the policy’s cancellation. In that time, you’ll be able to switch your entire company to a non-self insured plan with a health insurance carrier right away.
This used to be a complicated process pre-ACA, but now the switch can be made anytime, even if you somehow ended up in a stop loss policy that cancels on you mid year. But again, if you’re working with a good broker, you wouldn’t find yourself in this position anyway.
2. You have high claims on your stop loss policy and the stop loss carrier increases your rates next year or refuses to renew your policy.
On a non-self insured plan, you play a guessing game every 12 months: will my rates increase 10% or 50%? You have no clue, and the risk of increasing stop-loss coverage is the same, except when you’re self insured, you have more control. Why? Because when you’re self insured, you get anonymized claims trend data so you’ll know if your rates will increase far in advance. This lets you plan ahead, and if no stop loss carrier will insure you, you can always switch to a non-self insured plan, anytime.
Self insurance = more control and more visibility into future cost increases
In short, self insurance doesn’t make sense for all companies. But if your company employs 30-150 people and you haven’t explored this option, you really should. Consider some form of self insurance — and not just for potential savings. You’ll likely find that the increased control you have over your plan and visibility into future cost increases will put you in a better position to save your company and your employees both time and money over the long run.