Affordable health insurance for small and midsize businesses seems more unrealistic every year, and there are many reasons for that. This article addresses some of those barriers and discusses group captive insurance, a better alternative than fully insured insurance that saves money while providing employees with better care.
Health insurance, with its rapidly climbing costs, is an increasing burden for employers and employees alike. Employers have been forced to pass on more and more of those costs to their workers, leading to a situation where take-home wages have been stagnant for the past 20 years even as businesses spend more to attract and retain top talent.
To understand the solutions, we first need to look at the obstacles to affordable health insurance.
1. Wasteful Healthcare Spending
Overtreatment, overpayment, and other problems cost close to $1 trillion a year, amounting to 25% of all medical spending in the US.
According to a review study done by JAMA in 2019, that figure is caused by inefficiencies in six “waste domains”: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.
In reality, most people are surprised to learn that healthcare itself is not expensive. But bloated administrative procedures, price gouging, and fraud inflate the costs and keep them rising at a level that’s much higher than inflation.
“Over the past decade, insurance premiums have increased 55%, while wages have only increased 26%.”
Over the past decade, insurance premiums have increased 55%, while wages have only increased 26%. Waste plays an outsized role in those premium increases.
All the while, the largest fully insured insurance carriers keep logging record-breaking profits and paying their CEOs tens of millions of dollars a year while working families struggle to meet their copays and deductibles.
The sad truth is that the American healthcare system is driven by corporate share prices. The net result is that billions of dollars are funneled from local communities to Wall Street, says Dave Chase, founder of Health Rosetta. At the same time, take-home wages decrease as healthcare profits keep rising.
2. Lack of Trust in Insurance Companies
With health insurance premiums skyrocketing and workers shouldering more of the burden each year, a fundamental lack of trust has taken hold of the industry. For years, the health insurance industry has been one of the least-trusted industries in America.
In a 2019 survey, 90% of respondents said they trusted their insurance company “a little” or not at all.
And why would a person trust an insurance company that refuses to cover a medical procedure or prescription drug, then delivers a premium increase on their next renewal date? Or one that forces employers to keep raising workers’ share of their insurance premiums, deductibles, and copays, to the point that many workers take home less money each year?
3. Broker and Health Benefits Advisor Conflicts of Interest
Health benefits advisors and brokers exert a powerful influence over the organizations for which they work. Provided they are competent and financially aligned with their clients rather than the fully insured insurance carriers, they can put their influence to good use against the waste and inefficiencies plaguing the industry.
The problem is that many health benefits advisors and brokers are working solely for the benefit of the carriers that compensate them. This is a clear conflict of interest, as buyers are relying on these brokers for information and advice that best fits their needs.
This is an arrangement that would raise a red flag in finance and many other industries.
What’s more, because most brokers are paid by the mega carriers, they have limited tools from those carriers to work with when presenting choices to a potential client. Many of them don’t even know that self-funded options are available to small and midsize companies.
Unfortunately, the system is set up so that most brokers are paid by the fully insured insurance carriers. But there are great advisers out there who work in their clients’ best interest to find the plan that is right for them. And frankly, self-funding is not for everyone. A good advisor will steer you right.
4. Structural Obstacles Within Organizations
Health benefits advisors looking to act in the interest of the insured may meet resistance within organizations, particularly from HR departments. For a business leader who is used to looking at running a company through the lens of profits and share price, it may not always seem rational to work toward transparency and optimally formulated healthcare plans.
Among many small and midsize companies, self-funded group captive insurance is still a novel idea, and HR (who is already stretched thin) often has to work hard with limited resources and education to persuade the finance department that it’s a better alternative than the fully funded model.
5. The Wrong Pharmacy Benefit Manager
Like health benefit advisors, PBMs represent a strategic control point in the healthcare system. They administer the pharmaceutical portion of your insurance plan and exert a great deal of influence over the flow and quality of healthcare services.
There are three types of PBMs:
– Traditional PBMs, who operate with the opaqueness of fully insured insurance carriers, keep any savings they generate from your plan, and often have undisclosed sources of revenue
– Transparent PBMs, who are open about their fees and operate with clear contracts
– Pass-through PBMs, who pass all savings and pharmaceutical rebates to the employer
Both transparent and pass-through PBMs can be a powerful tool, saving their clients money by negotiating prices, discounts, and rebates while finding other ways to keep prescription drug costs down.
“Just three mega PBMs process around 80% of prescriptions.”
Unfortunately, just three mega PBMs process around 80% of prescriptions. These traditional PBMs represent another conflict of interest that doesn’t work in the customer’s favor and contributes to skyrocketing drug prices.
Drug procurement inefficiencies like the following also contribute to sky-high prices and wasteful spending:
– The manipulation of reimbursements on various drugs
– The use of cheaper and less efficacious medications on patients
– The use of different medications from the ones doctors prescribe
– The placing of the highest out-of-pocket costs on the most effective medications
– Billing inconsistencies
6. Fee-for-Service Primary Care
Primary care is the cornerstone of every solid healthcare system in the world. In the US, however, the fee-for-service model is inefficient and costly. Many people are unwilling to see a doctor because of the expense and develop more serious health issues that ultimately cost more to treat.
Primary care as it exists now focuses mostly on sick visits, and under the fee-for-service structure, providers are forced to squeeze an average of 20 patient visits into each day. On average, a primary care provider spends 18 minutes with each patient and covers five topics, spending only one to two minutes talking about each.
The fee-for-service model doesn’t allow for continuity of care or a focus on well-being. Many experts believe that a relationship- or value-based arrangement that allows for ongoing doctor-patient dialogue would result in healthier patients and dramatically lower the expenses associated with primary care.
7. The Status Quo
To understand the main reason healthcare reform has been nearly impossible, follow the money. The profit margins in healthcare are enormous, and the people in power benefit from the status quo, so there has been insufficient motivation to make change.
From the employer’s perspective, an employee costs much more these days than 20 years ago. Healthcare-related expenses play an outsized role in this. Yet sadly, the extra money employers pay doesn’t end up in the pockets of wage-earners. Neither does it improve the healthcare they get.
Instead, the money goes to corporate shareholders and continues to feed the inefficiencies of the system. And in the corporate world, operating to maximize share prices and earnings profit is rational behavior. Unfortunately, this mindset has resulted in the loss of 20 years of wage gains, which has devastated the middle class.
It’s clear that the status quo works only for those at the top — those who have no incentive to change it.
Self-Funded Group Captive Insurance — A Better Alternative
Ironically, many of the same corporations who benefit from the status quo figured out long ago that there is a better alternative to fully insured insurance coverage. Over 90% of large corporations self-fund their own employee healthcare benefits.
Unfortunately, that has not been an option for small to midsize businesses, who don’t have the resources to self-fund.
In 2003, Roundstone introduced the first group medical captive, which made it possible for small and midsize companies to circumvent the fully insured insurance carriers. By banding together to create a pool, member companies are able to share the risk of the volatile healthcare market- and come out ahead.
Smaller companies are now able to insure their employees the way that large corporations do.
Self-Funding With Roundstone
As the original medical captive — the “OC” — Roundstone has the expertise you need to guide you through the self-funding journey. We work hard to advocate for our plan members, and we know what we’re doing.
Here are the benefits you will enjoy with group captive insurance with Roundstone:
– Cost savings. Roundstone guarantees that you will save money. Our members save as much as 20% per year in healthcare expenses. Over five years, that’s like getting a year of paid claims free.
– Data transparency. Unlike the fully insured insurance carriers, we believe in full disclosure. You will have complete access to your claims data through our CSI Dashboard, so you can see how your covered employees use their benefits. Our Cost Saving Investigators (CSI Team) will even help you analyze that data and identify cost-containment opportunities.
– Flexibility and control. With Roundstone, you are in control of your insurance plan. You choose your third-party administrator (TPA), broker, and PBM. You decide what to cover and what not to cover so you can meet the needs of your employees while not paying for benefits they don’t need.
– Premium reimbursement. At the end of each plan year, you keep any unspent money in your claims fund. Group members also share any captive pool funding surplus on a pro rata basis in an annual distribution check.
– Superior customer service. At Roundstone, we recognize that your company is unique. We have a top-notch team of experts who will help you craft a plan that meets your specific needs, and we’ll be there to support you every step of the way. What’s more, we make switching to self-funded group captive insurance easy.
There is so much more to learn about the advantages of joining a group captive with Roundstone. See our blog post Why Choose Roundstone for Group Captive Insurance for more information about why self-insuring with Roundstone is the best choice you can make for your business.
Request a Proposal
To start the conversation about how group captive insurance can save your company money while providing high-quality coverage to your employees, request a proposal and benchmark study today.
Material for this article was drawn from a Keynote discussion at the 2021 Medical Captive Forum, “How to Identify and Overcome Obstacles to Controlling Costs in Healthcare.” Our thanks go to Dr. Eric Bricker, founder of AhealthcareZ; and Dave Chase, founder of Health Rosetta.