In recent years, it’s become increasingly common for businesss with as few as 200 employees to explore self-insurance. But beware of hidden traps.
When your organization is weighing self-insurance – or has already taken it – here are three pitfalls that can develop unexpected costs.
1. Unfavorable employee mix
It’s impossible to completely eliminate the risk of unexpected, high-dollar health claims. But here’s a guideline to decrease your risk. Health claim stats suggest the “ideal” staff member population for a self-insured plan is predominately young, non-tobacco use and male.
Be aware that stop-loss insurance carriers often “laser” those employees considered higher risk. Lasering means that your corporation would’ve to pay out much more in claims for these employees before the stop-loss coverage kicks in.
2. Loss of network discounts
Some firms learned after the fact that going the self-insurance route caused them to lose providers’ network discounts they previously received under fully insured plans. When reviewing plan vendors’ administration-only choices, ask –
Will the provider’s network alliances work in your best interests, cost-wise?
Will the vendor only oversee claim payments or negotiate to build the best provider network, quality-wise, for your employees.
Bottom line – You should get the same types of plan designs, networks and discounts as a fully insured plan.
3. Wasteful reinsurance contracts
If the language of your reinsurance contract doesn’t match your health plan’s summary plan description, you might be compensating for coverage you don’t need and can never use.
It’s also key to make certain your firm has enough money in reserve to cover run-out claims and other costs that may occur before reinsurance will cover payments. Best practice – annual audits of your financial reserves.
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