Let’s say you’re responsible for health benefits at your organization. You might be looking at it from the financial side. You might be actively involved with managing employee benefits in Human Resources (HR). Or you could very well be looking at all aspects of providing high-quality benefits to your employees as a long-term initiative.
For each of these individuals, the process of looking for and evaluating different health insurance options can be a frustrating experience. And they have to go through the same thing every year, like playing a game where you have little control or impact. Reminds me of trying to drive those little cars at the carnival with steering wheels that just spin.
Fully Insured vs Self-Insurance: You Do Have Options
There are better alternatives to the traditional fully insured model (the big insurance carriers) out there, but many employers don’t even know about them. Why? Without sounding too conspiratorial, it’s because the system doesn’t want you to. They prefer it if you were completely unaware of the savings potential of self-funded insurance.
Many brokers, insurance companies, and other solution providers who are part of the overall healthcare ecosystem are not always aligned to the interests of the employers. They are pushing a status quo solution that works well for them in terms of profitability. They want you to stay in that system, play that game, pretend to steer that little car. For the traditional insurance world, the less you know about self-funded health insurance, the better.
But what if you want to really steer the wheel and gain control of both the employee experience and the expense? The good news is that you can! Companies looking for alternatives to the traditional, fully insured, fixed-cost approach may find that self-insurance (also called self-funded insurance) provides greater flexibility, cost savings, and control.
This is not to say that all traditional health insurance is bad. Going the fully insured route may be the right choice for some organizations. But you owe it to yourself and your employees to see if you are a good fit for self-insurance and the significant benefits that it can deliver over the long term. And the good news is self-funded insurance on a group medical captive makes it possible for even small to midsize companies to confidently self-insure.
FAQs About Self-Funded Health Insurance
We put together a few commonly asked questions about self-insurance to help you decide if it could be a good (or great) fit for you, both practically and philosophically. We also bust some common self-funding misconceptions that you may have heard along the way from folks who may be trying to pile on FUD (fear, uncertainty, and doubt) to protect their own interests.
Note that there are a couple of other options for employee health insurance, including level-funding, but for our purposes here, we are comparing self-funding with fully insured. For information on level-funding, refer to this article.
What Is Self-Insurance for Employee Health Benefits?
Let’s start with the basics. Self-insurance, also commonly referred to as self-funded insurance, simply means the employer pays the healthcare claims of employees through a third-party administrator (TPA) and buys stop-loss insurance for coverage of high-cost claims.
Instead of paying a fixed premium to an insurance company, companies pay claims as they come. Self-insurance involves creating a bank account specifically to fund employee healthcare claims. To protect against high-cost, catastrophic claims, the self-insured company will typically purchase stop-loss insurance for coverage.
Many corporations are self-insured because they can reduce the administrative costs that come with being fully insured and they can have more control and flexibility over their plan design. A survey conducted by the Kaiser Family Foundation (KFF) in 2021 found that 64% of employees are covered by self-funded health insurance plans from their companies.
How Does Self-Funded Health Insurance Work with a Group Captive?
For small and midsize companies, however, self-funded insurance wasn’t always practical from a year-over-year volatility perspective. But by pooling many employers together in the Roundstone group captive, they can now enjoy the benefits of self-funded health insurance without the dramatic cash flow ups and downs.
The captive bands together employers in a pool so they can have the same scale and resources of a large company and effectively share the risk. The group captive is a type of self-insurance, which is what Roundstone offers.
What’s the Difference Between Fully-Insured and Self-Funded?
Employers with fully-insured health plans pay a monthly fee to the insurer, who processes and pays claims. The rates remain fixed throughout the term, regardless of the number of claims and amount of care employees receive. Once your plan is set, you can’t change or adjust much throughout the year.
Self-funded health insurance differs from traditional insurance in several important ways. Most importantly, with a self-insured plan, you have much higher variable costs — about 85% variable costs (compared to 0% with fully insured carriers) — costs you can control. This bucket is your biggest opportunity for cost savings with cost containment solutions to lower healthcare spending with a self-funded health insurance plan.
With self-insurance, you have complete control over the plan design offered to employees. You also choose a third-party administrator (TPA), pharmacy benefits manager (PBM), and other best-in-class solution providers like concierge services, for example.
And finally, with self-funded health insurance, you only pay for what you use and keep what you don’t spend.
Why Should I Consider Self-Funding Employee Health Benefits?
There are many reasons to choose self-funding over fully insured health insurance, including greater flexibility and control, full transparency on what you are paying for, and potential for significant cost savings.
Self-Insurance Delivers More Flexibility and Personalization
With a self-funded plan, you can personalize based on your unique business and employee needs. Instead of accepting one “black box” bundle from a big insurance carrier, you get to effectively build your own self-insured bundle from best-in-class solutions.
In fully insured arrangements, carriers manage all the expenses, so your company may not know how much individual plan elements cost. Choosing self-funded insurance allows you to build an affordable employee health insurance plan that meets your employees’ needs.
With a self-funded health insurance plan, you can select the providers, hospitals, and other services you want and build in copays, deductibles, and other benefits as you see fit. You can even build in incentives (such as low copays and deductibles — or none at all) to encourage your employees to use more efficient, higher-quality care when it’s appropriate.
Self-Insurance Provides Full Transparency
With self-funded health insurance, you get complete transparency.
- Data and analytics. With self-insurance, you get information and data-driven insights to make better decisions and optimize plan utilization. You and your benefits advisor will have access to all the data you need (all HIPAA-compliant, so no individual privacy issues to worry about) so that you can see how you are running and where there are opportunities to save on high-cost prescriptions or to introduce incentives to steer employees to think twice before going to the ER or urgent care for more routine conditions.
- On top of plan optimization, you are also backed by a team (your advisor, Roundstone, and your TPA) who is vigilant about fraud, waste, and abuse so you can rest assured you are not overpaying for any medical claims. You’d be amazed at how many opportunities there are to save money in all these areas. In a fully insured world, there is not as much incentive to correct it, so you can be overpaying and not even know it.
- Cost savings solutions. You can take advantage of effective and fully vetted cost containment solutions on the market. Our experts will recommend solutions based on insights from your data — all aimed at optimizing your plan and your employee wellness. This means you can take advantage of market innovation and put it to work for you. Examples include boutique concierge services, pharmacy benefit programs, telehealth providers, and employee assistance programs. These solutions are ultimately designed to help you connect employees to the right care, at the right time, in the right places, from the right doctors.
Health Plan Savings
Unlike a fully insured or level-funded plan, you keep any unused premiums at the end of your plan year with a self-insured solution from Roundstone. You pay only for the healthcare you use. You get money back in three ways: 1) unspent premium in your own claims account, 2) unspent premium in the captive pool distributed back to employers pro rata, and 3) pharmacy rebates that go right back to you. In its latest distribution, Roundstone distributed more than $10 million back to employers in August of 2022.
How Do I Know If My Company Is a Good Fit for Self Insurance?
Determining if a self-funded insurance plan is a good fit for your company means understanding what makes an ideal self-insurance candidate. If your business has the following elements in place, self-insurance might be right for you.
- You’re frustrated with the current state. If you’re not feeling much pain with your current arrangement for health insurance, you are probably not going to be motivated to change course. Most organizations are fed up with high increases at renewal, not a lot of information to explain why, and the feeling that they have no options to control one of their biggest business expenses. If you’re ready to escape the hamster wheel of escalating costs, you’re probably an ideal candidate for a self-funded insurance plan.
- You have at least 25 eligible employees. Self-funded insurance has traditionally worked well for larger corporations as an alternative to traditional insurance. However, smaller organizations — those with between 25 and 1000 employees — can also benefit from self-funded insurance with a group captive plan like Roundstone’s.
- You encourage self-advocacy. Self-funded health insurance works best when company leaders, HR, and plan members are engaged. Companies that consider their employees an asset and encourage self-advocacy through education and plan involvement are great candidates for self-funding health insurance.
- You understand your budget. We often ask companies if they know how much they spend on healthcare for each employee per month or per year (PEPY). A good candidate for self-funded insurance will want to understand their healthcare budget. You should have an idea of what you’re currently spending on premiums and healthcare benefits and where you’d like that number to be in the future.
- You have an innovative leadership team. Self-funded health insurance blossoms under a strong leadership team who “gets” the strategy and evangelizes for it throughout the company. This can include management and HR professionals, who help employees enroll and collect feedback on how well the self-funded insurance plan meets their needs.
- You have a long-term perspective. Self-funded insurance is not for companies who want to think about healthcare and treat purchasing health insurance as a yearly exercise that involves comparing a bunch of similar options on a spreadsheet.
- Instead, healthcare requires a long-term perspective. Many companies that switch to self-funding gain insight into plan elements and cost containment opportunities and adapt their plan as they continue to run. They see significant savings year over year; it only gets better with time.
- You prioritize recruiting and retaining top talent. Are health benefits important to your ability to attract potential employees? If so, you’re a good candidate for self-insurance because you are more likely to be able to offer more competitive and affordable benefits packages. At Roundstone, our employee contributions have remained flat over the past 7 years, while our benefits have only gotten better. That is what we call “drinking our own champagne.”
- You’re open to change. The final criteria is obvious, but sometimes it’s the hardest: the willingness to change. As humans, most of us are wired to find change uncomfortable and will endure all sorts of painful and non-ideal situations simply because we are afraid of the unknown. Roundstone has a way to allay these concerns with its five-year guarantee. You will save money over 5 years, or we will make up the difference. You’ve literally got nothing to lose!
Take the First Step
If you’re ready for more control over your benefits and the ability to reduce costs, consider a self-insured group captive plan with Roundstone. You can benefit from Roundstone’s self-insurance solution, which allows you to be flexible and save costs while providing affordable healthcare to your employees.
To learn more about how self-funded health insurance can work for your organization, contact Roundstone today. We’ll be happy to go over this with more detail and let you know if you’re a good fit to take the next step and get a quote.