Credit unions are not immune to the scourge of rising healthcare costs facing employers across the country. Of course, you want to give your employees access to high-quality coverage that includes affordable premiums and deductibles, but too often, these factors are mutually exclusive. In the last decade, the average deductible rose 92 percent. So, how can you stem the tide? Self-insurance may be the answer.
You’re likely familiar with the traditional fully insured model. Enrolled employers and employees pay premiums to an insurer that negotiates rates with healthcare providers and pays a percentage of the cost of care. In the process, fees and insurer profit margins drive up costs, and employers are often limited to off-the-shelf plans that don’t account for specific employee populations. Sound familiar?
With a self-insured plan (also called a self-funded plan), the employer sets up a trust funded with money from corporate and employee contributions earmarked for paying claims. Typically run by a third-party administrator (TPA), this type of plan eliminates much of the overhead cost of traditional insurance and gives the credit union more control over the design of its plan.
Did you know self-funded plans cover most employees in the U.S.? Still, some employers, especially smaller ones, remain wary of perceived risks involved in switching to a self-funded healthcare model. However, in reality, a self-funded plan can lower your risk and save your credit union money while allowing you to provide high-quality healthcare benefits.
Skeptical? Here are five reasons to give self-insurance a closer look:
1. It’s not as risky as you think
Unlike a fully funded plan where the employer pays in advance for healthcare coverage that their employees may or may not use, a self-funded plan pays for expenses only after they’re incurred. As a result, when claims are lower than expected, the employer saves money.
But what happens if an employee or dependent has a catastrophic health crisis with a six-digit price tag? For that matter, what if health costs overall rise quickly and unexpectedly? After all, medical expenses grow every year, rising almost 7% in 2021.
If you’re concerned that a self-funded plan could leave you liable for sky-high claims, rest assured. Employers can protect themselves with stop-loss insurance, essentially, insurance for your insurance plan. It helps you manage risk while still saving money over fully insured plans.
There are two types of stop-loss insurance:
- Specific stop-loss, sometimes known as individual stop-loss, protects the employer against high claims by individual employees.
- Aggregate stop-loss includes a cap on the total expenses that an employer is responsible for in a given contract period.
The right broker can help you navigate which option may be better suited for your CU.
2. Your risk pool is better
Credit unions have a significant advantage over many other industries because their employees have very low-risk jobs. In fact, “Business and Financial Operations” is considered one of the top 10 safest occupation categories in the United States. That means that credit unions are more likely to have fewer healthcare claims and lower costs overall.
However, suppose you’re paying community rates for a fully insured plan. In that case, the insurance company may lump your employees with those in more dangerous industries such as logging, law enforcement, and farming, which have exponentially higher rates of on-the-job injuries. A study published in Population Health Management found that only 1%–2% of members drive 30%–35% of annual claims. In other words, a small number of people — who don’t even work for you — could seriously impact your premiums.
In effect, with traditional health insurance plans, you’re subsidizing the healthcare for employees in more dangerous occupations. Moreover, while you have the option of offering your staff cost-saving wellness incentives, you have no control over the health and well-being of employees at other companies.
A self-funded plan, in contrast, is limited to your enrolled participants, giving you more control over your risk pool with less volatility.
3. You can customize to fit your needs
Another attractive advantage of self-insuring is that you aren’t limited to the one-size-fits-all policies typical of fully funded plans. Instead, you have the flexibility to choose features and benefits that fit your budget and suit your employees’ needs. You’re also free to contract with the providers or networks that work best for your credit union.
And, because the Employee Retirement Income Security Act of 1974 (ERISA) regulates self-funded plans, they are not subject to state insurance laws. This allows you to offer identical coverage to all your employees, regardless of where in the U.S. they’re located, and avoid the administrative costs of multiple programs.
4. You only pay for what you use
The traditional fully funded plan is somewhat like your Netflix subscription; you pay the same monthly fee for it regardless of how much you use it. On the other hand, a self-funded plan has more in common with your water or electricity bill — you only pay for what you consume.
Another drawback of fully funded plans is that they’re subject to state taxes that can run 1.5 percent to 3 percent of your annual costs. In addition, they’re also subject to Affordable Care Act fees, including the annual health insurance industry fee and the risk adjustment program fee. Typically, insurers pass the costs of these fees and taxes on to you, the customer. Self-insured plans, in contrast, are not subject to state taxes and are exempt from some ACA fees.
5. You can save — a lot
Typically, only around 80% of the money spent on a fully insured plan goes to healthcare. When you switch to a self-insured plan, you’ll save on taxes, fees, administrative costs, and insurer profit margins — not to mention that if your claims are lower than anticipated, you can bank the difference. You can also earn interest on the money set aside for healthcare coverage, further offsetting your expenses.
Even allowing for the costs of a TPA and stop-loss insurance, there’s a good chance that you’ll save considerably over the expenses of your current plan. The credit unions we work with often realize a 10%–30% savings in the first year alone.
What will you do with the money you save by switching to a self-insured plan? Maybe you’ll put it into wellness programs that can drive down your costs even more while improving the health of your employees. Perhaps you’ll use it to lower your employees’ premiums, giving you an edge over other employers in a tight hiring market. Or maybe you’ll pass the savings on to your members with improved services and discounts. Think of the possibilities if you had money to fund digital innovation initiatives.
However you use it, you’ll have the satisfaction of knowing you earned your savings without sacrificing the quality of your healthcare plan. Now is a great time to consider the options self-funding can open up for your CU. Schedule a free consultation with us today!