Self-insurance offers employers a different way of engaging with their healthcare scheme. Emma Lunn finds intermediaries in positive mood
Companies with as few as 300 employees could benefit from opting for a self-insured healthcare solution and will become more engaged in the scheme if they do so. That was the view of delegates at the Corporate Adviser Self-funded Healthcare: Too Valuable To Ignore? round table event held in London last month.
But despite the endorsement of the solution given by advisers at the event, held in partnership with Simplyhealth, it appears some companies are not even being told about the self-insured option. Naomi Saragoussi, principal at Mercer said she had recently dealt with a company who had been with the same health insurer for the past 20 years, had 600 employees and had never even been told about trusts.
“We should always talk to the client about all the options that are available whether we think they will take them or not,” she said.
Karen Gamble, director of health and wellbeing at Gallagher Employee Benefits said the self-funded option is not something clients themselves raise, but something an intermediary or consultant should introduce to discussions.
“What they’re saying is, particularly in my environment, is I don’t like what I’ve got, what else is there, is there a different way of doing this?” she said, “No one says to me, quite frankly, can we have a self-funded trust? What they say to me is this is rubbish, is there a way of making this work a bit better? And that’s where the discussion about self-funded is generated.”
Self-funded or self-insured healthcare plans allow companies who employ a large number of staff to operate their own health insurance plan as opposed to purchasing insurance from a health insurance company. This is often done in the form of a trust. The health insurance company is still involved, however, as it administers the healthcare benefits and treatments. The risk, meanwhile, is transferred from the insurance company to the employer.
The first thing consultants and intermediaries must determine with their clients is whether a self-insured scheme will add value to the company.
Steve Bradley, client director at Lorica Consulting, said deciding whether self-insurance will deliver return on investment very much depends on who in the sponsoring organisation you are talking to. He said: “Human resources might look at a wider benefit spread but be more conservative. However, a finance director will look at the whole spectrum of benefits.”
Simon Cook of Marsh was quick to point out that self-funding doesn’t suit every client. “There has to be a critical mass in the organisation to make it worthwhile and it has to be specific to the right client to take it further,” he said.
That critical mass necessary to make self-funded a viable option was not surprisingly a key issue of debate for advisers. A threshold of 500 employees was mooted and a vote suggested that 57 per cent of those present thought that such a workforce was the smallest size of employer for which a self-insured solution could be financially attractive. 43 per cent put the threshold at 300 employees while none of the delegates thought self-insurance was a viable option for companies with 100 or 50 employees, although there would be exceptions for certain types of high value business.
Paul Nunn of JLT Benefit Solutions said that larger clients are not surprisingly most open to trust options and the job of consultants and intermediaries is to educate clients to come round to that idea. Other delegates agreed that making clients aware of self-funding as an option was key.
Delegates agreed that self-funded insurance generally made employers and employees more engaged and involved with the scheme, as they had a sense of ownership and interest in the way claims were paid out. On the plus side a self-funded plan can work well if there’s a cultural fit with the client and often a bespoke option can provide this.
Howard Hughes, head of employer marketing at Simplyhealth, said: “Self-funding clients tend to be more engaged and ask more questions and be more on the ball. They are more challenging to us as administrators to say ’what can we do about this? We have an issue here’. Once they have made the leap of faith there is ownership and accountability.”
Gamble cited strong personal evidence of cases where having a trustee meeting every year raised interest significantly. She reported good strategic thinking coming out of these meetings, where health and wellbeing feedback can lead to effective outcomes, the most notable being a company with lots of young sporty employees deciding, as a result of trustee meetings, that they should have an on-site physio on Mondays to deal with sporting injuries picked up over the weekend.
“It’s very important when you select an administrator that the cultural fit is there. It’s very much down to how phones are answered, and claims are made. Once you have that cultural fit then you have the discussion about what benefits are appropriate to include and again that is a cultural issue for the company,” she said. “Have you got a lot of youngsters, middle aged or elderly? Is it entitlement or a business tool? Once you get those pieces right then you can start looking at the finances but I think if you want to do this to save money then you’re going about this the wrong way.”
On the flip side, the extra engagement that comes with self-funding can bring extra responsibility. It means there is no get out clause for the company in the event of things going wrong or claims not being paid, because the employer is directly accountable for the problems rather than simply being able to blame the insurance company.
A possible barrier to companies opting for self-funded healthcare is the availability and cost of stop-loss insurance, which kicks in when claims reach a certain level. Delegates pointed out that only a certain number of insurers are offering stop loss insurance and mostly at a high price. However, if the risk analysis and claims estimation are right, then the stop loss should rarely be reached.
Chris Moore, head of major accounts at Simplyhealth, said: “It’s a powerful insurance to buy but to a certain extent where we come from in estimating claims costs is making sure you are getting the risk right and getting the right level of claims funding. We’re not in the game of trying to undercut and saying here is a claims fund that is artificially low so you can come in and buy the business. We don’t do that because the client has to stand on their own two feet if they’re self-funding. To a certain extent we should be putting our money where our mouth is and saying if we’re happy with the claims funding we’ll fund the stop loss – but we’re not there yet.”
Another potential downside of self-funded health insurance is managing volatility. While self-funded insurance is likely to be more volatile in the short-term, it is possible that over the longer term this won’t be the case, although not everyone was convinced.
Chris Evans, senior consultant at Buck Consultants, said his consultancy recently ran a seminar in response to demand from clients and prospects. One of the topics that came up was volatility in the self-insured and traditionally insured markets.
“Part of the analysis we did was look across Buck’s portfolio, which is reasonably representative of the market, and looked at funding levels and compared this with the outcomes across companies and by group size and it’s a funnel – a huge amount of variation,” he said.
“Even with larger companies there was a surprising amount of variation in the fund and we put that down to the evolution of treatment for cancer. Now the variation between the average claim and highest claim is that much greater, and that’s set to continue. That’s the big challenge to self-funded insurance: dealing with that variation. Even big schemes are not protected against that volatility.”
Evans’ comments were reflected by the majority of roundtable delegates. When asked what the primary reason was that employers that could potentially benefit from a self-insured solution rejected it, 57 per cent said it was perceived as too risky and 29 per cent cited concerns over cost volatility.
Certainty of costs is one reason decision makers within a company might want to return to, or stay with, an insured option rather than self-funding. But they will need to ask themselves how safe that environment really is. Changes to the IPT regime and other insurance overheads could mean that the insured route becomes more expensive in the future.
Inevitably, costs and the bottom line are a key part of the decision about whether self-funding healthcare is right for a particular client. There are fixed costs in setting up a self-funded scheme as well as the ongoing costs of managing the scheme and administering claims. Whether you’re insured or self-insured, statistically in any given year one in four people on a healthcare plan will make a claim.
Cook pointed out that when most clients make the change from funded to self-funded, they don’t change their actual healthcare plan, just the funding mechanism. “What self-funded TPAs (third party administrators) generally have is a more robust admin service which allows them to analyse claims data, and allows us as intermediaries to analyse claims data in a much better way than they get from their insurance,” he said, “After two or three years we can then give meaningful advice about how they can design their healthcare plan. Self-funding will provide a cost saving, in my opinion, but over the longer term.”
Nunn said medical inflation is another issue when it comes to the transparency involved in a client running their own healthcare scheme. “You need transparency within the cost of claims and the cost of treatment. You also need to be able to know how inflation is affecting your performance rather than insurers simply telling you what medical inflation is,” he said.
So while self-insurance is not for everybody, delegates concluded there was plenty of scope for growth in the self-insured market.