‘Everybody Wants to Save a Dime’: Companies self-insure to thwart health care costs

Ever-rising costs are prompting more employers to consider ditching their health insurance providers and paying the medical claims of their employees themselves.

Self-insurance was once mainly for large corporations that could afford the risk of potentially expensive claims. But benefit consultants say self-insurance can work for smaller employers hoping to decrease health care costs.

“It’s definitely on the uptick,” said Jennifer Petterson, an employee benefits specialist and Traverse City practice leader at Advantage Benefits Group. “More employers than ever are looking at it.”

Nationally, the percentage of companies with fewer than 100 workers offering self-insured plans rose from 14.2 percent in 2015 to 17.4 percent in 2016, according to a report this year by the Employee Benefits Research Institute.

Some companies also self-insure for dental and vision costs, and property and casualty. But the vast majority of self-insurance plans are used to pay for employee medical care.

Few local companies appear to be self-insuring, but Petterson said a number of her clients are considering it.

Hagerty in Traverse City has self-insured for more than a decade. The collector vehicle and boat insurer’s self-insured health plan covers about 85 percent of the company’s 960 U.S. employees. Most of the rest of its workers are insured through spouses’ employers.

“It’s more economical,” said Gretchen Overbeek, vice president of compensation and benefits at Hagerty. “There’s no downside to it from our perspective.”

But Overbeek and others say setting up a self-insurance plan requires more effort on the employer’s part than contracting with an insurance company to fully insure its workforce.

Self-insured employers usually purchase stop-loss insurance, which pays for claims over a set amount. They also contract with others, including an actuarial consultant, a pharmacy benefits manager and a third-party benefits administrator.

“You have to do your research and understand the makeup of your employee group,” Overbeek said. “Claims costs can be volatile in the short term, but it gets better over time.”

The fear of being overwhelmed by expensive claims is a major reason why smaller companies are reluctant to self-insure. And employers in smaller communities like Traverse City have few choices in benefits administrators, Petterson said. Most are larger insurance companies, such as Blue Cross Blue Shield of Michigan and Priority Health that cater to larger employers.

There also is a steep learning curve initially that turns off some employers who would rather contract with an insurance company to fully insure their workers. But employee benefits experts say many businesses can save money in the long run by self-insuring.

Aetna Inc., which left Michigan’s small business market in 2010, recently began offering a self-insurance product for businesses with between five and 50 employees. It said its Aetna Funding Advantage product can save businesses up to 40 percent over traditional health insurance.

“It’s more of a long-term decision,” said Kim Boyer, an employee benefits account executive at Ford Insurance Agency in Traverse City. “It takes about three to five years before an employer reaps a savings benefit.”

Boyer and other employee benefits consultants say self-insurance usually works best for companies with between 50 and 100 employees because of the costs for stop-loss insurance and other administrative expenses.

Traditional, full insurance probably makes more sense for businesses that have an older workforce with high health care utilization rates, they say.

But by self-insuring, employers can design plans that better meet their specific workforce situations, avoiding some of the costs and requirements in complying with state and federal insurance regulations.

Self-insured employers also have more information about their health care costs because they’re paying medical claims and administrative fees directly.

“There’s more transparency of information,” Petterson said. “You can account for every penny spent for health care costs. The data doesn’t speak to you when you’re fully insured.”

After the first year of self-insuring, employers know how much they’re paying in medical claims and can adjust their plans to fit the employee risk profiles.

Employers often couple self-insurance plans with employee wellness programs. Such programs can help improve workers’ well-being and result in greater compliance with treatment plans from employees’ physicians.

“If I can save one person from a heart attack, I can have some real dollar savings,” said Jennifer Ewing, an employee benefits consultant at Human Resource Partners in Traverse City.

But knowing more about their workers’ health puts a greater responsibility on self-insured employers to protect the privacy of that information under the federal Health Insurance Portability and Accountability Act (HIPAA) in plan designs.

Experts say self-insured companies should appoint a HIPAA privacy and security officer to ensure federal requirements regarding the privacy of employee health records are being met.

Rising health care costs have resulted in employee benefits specialists designing more self-insurance programs for smaller employers, Boyer said.

“Employers want to have more control over their cash flow and pay claims as they come up rather than monthly insurance premiums,” she said. “Everybody wants to save a dime on health insurance.”