Self-Funding Compared to Traditional Insurance

Traditional health insurance is not what insurance was intended to provide. In traditional health insurance, nearly every single routine healthcare interaction is attached to insurance and underwritten by the carrier. Labs, X-rays, minor outpatient procedures, etc... If everything is insured then what's the point of insurance? Insurance is supposed to be an exchange of a small known loss (premium) for the coverage of a future, unknown, large loss (claim). In the same way it doesn't make sense to have auto insurance cover gas and oil changes, it's inefficient to have health insurance pay for low-cost services. This is why I love self-insurance. It disentangles small dollar claims from insurance. If an employer stays fully insured, 100% of their plan expenses come in the form of insurance premium also known as 100% fixed costs. When self-insuring, employers choose the level of insurance they want in the form of a specific stop loss deductible, and use cash to pay for claims under that threshold. If, and only if, a claim/claims exceed(s) pre-determined dollar amounts, does insurance kick in. 60-70% of a self-insured health plan expenses are claims. This means 60-70% of an employer's healthcare budget no longer has premium, taxes, carrier overhead, commission, and profit loaded on top. If the goal is to make a health plan more efficient over time, then self-funding makes more sense for most employers than a guaranteed cost environment with carrier margin baked into every claim. Oh, and captives like ParetoHealth are a great way to accomplish this goal over the long-term for small-to-mid-sized businesses. Thanks for reading 👍🏼 #selffund #selffundordie #selffundedwithspencer #stoploss #charliemunger #efficient #healthcare #healthinsurance

Hey kid, you ever seen a death spiral before? What's happening? Forty percent of small employer plans have left the fully-insured market for self-funding. Health insurance costs are soaring, in large part because state mandates inflate expenses. Self-funded plans, on the other hand, avoid these mandates, resulting in lower costs for employers. https://lnkd.in/eKNjrtbQ Under ERISA, employer-sponsored health plans are generally exempt from state law. The exception to that rule is called the "savings clause," which permits states to regulate insurance sold within their borders. This means state legislators often respond to constituents demanding coverage for specific conditions by adding new mandates. While each mandate might be well-intentioned, collectively, they drive up the cost of insurance. It's a classic case of policy decisions having financial consequences—more coverage leads to higher expenses. E=CUP shows up again: an increase in Utilization (U) leads to an increase in Expense (E). Enter self-funding. By shifting to self-funded plans, employers can avoid state mandates altogether, effectively changing their regulatory landscape. Even major insurance carriers that once resisted self-funding are now on board through "level-funding." This approach makes self-funded plans resemble fully-insured ones but keeps them outside the reach of state insurance regulators. And it's attractive. According to an NAIC analysis, approximately 40% of employers with 3 to 99 employees are exiting the fully insured small-group health insurance market in favor of level-funded plans. Why does this matter? The groups most likely to switch are those with healthier employees—the ones that underwrite well and benefit the risk pool. This leaves behind groups that may not underwrite as favorably and can't capitalize on cost savings. As healthier groups depart, the risk pool deteriorates, causing premiums to rise. This creates a vicious cycle—a "death spiral"—where increasing costs drive more healthy groups away, further destabilizing the market. I can't say exactly when the fully-insured group health insurance market will reach its tipping point, but one thing is clear: that day is coming. Benefits Advisors/Brokers/Consultants who are primarily in the fully-insured space today would be well-advised to get familiar with the future of the market, including level-funding and ICHRA. Employers need to understand the differences between fully-insured and self-funded as it relates to not only price, but protection.

If you're in a fully insured environment—whether you have 1,000 employees or 75—you don’t have enough transparency into the data. The carrier cannot justify their increase with sufficient data. They simply can’t do it—and they won’t. In the self-insured space, however, you pay what you deserve because you have full access to the claims data and all the necessary data points. For example, if we’re sitting down with a client, we might say, “If you take this data point and react in this way, you'll save $300,000.” Their response might be, “No, I don’t want to do that. I don’t want to deal with the noise from my employees.” And that’s okay! They’ll pay a little more to avoid the potential noise. At least they had the choice. Another client, on the other hand, might decide to opt for offering free diabetic supplies to employees, spending a little more money to do so. The employees will need to go to a specific place to get those free supplies. Could that create some noise? Perhaps. But again, they had a choice. With self-funding, you control the pricing more than you ever thought you did. You decide: - What’s the copay? - What’s the deductible? - What’s the out-of-pocket maximum? - How rich is the network? All of these factors are value propositions that you control and you pay for. #DealmakersCon #EmployeeBenefits #BusinessStrategy #SelfFunding