The Top 3 Advantages of Self-Funded Plans

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Earl Fleming
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1 The Top 3 Advantages of Self-Funded Plans How Employers Benefit from Flexibility, Plan Savings & Employee Engagement A Whitepaper Presented By

2 Contents 1. Introduction: TODAY S OUT-OF-CONTROL HEALTH COSTS a. Care Costs Up, Plan Costs Up b. The Role of Self-Funding 2. PLAN FLEXIBILITY a. Comparing Plan Structures b. What Does Your Workforce Need? c. Access Benefits Data & Act on It 3. PLAN SAVINGS a. Claim Costs: Fixed vs. Actual b. The Cypress Solution c. Health Claim Scrutiny d. Cost Control Solutions e. Annual Cost Savings 4. EMPLOYEE ENGAGEMENT a. Members Making Informed Decisions b. Employee Advocacy & Wellness 5. Conclusion: SELF-FUNDING & THE BIG THREE

It s a growing list of issues that contribute to the problem.

3 TODAY S OUT-OF-CONTROL HEALTH COSTS Care Costs Up, Plan Costs Up Employers have long been dealing with the same conundrum. As health care costs continue to climb so sharply, how do we keep pace with the direct effect they have on the rising expense of employee benefit plans? It s a growing list of issues that contribute to the problem. Take pricing transparency, for example, and the fact that a medical procedure at one hospital might cost five to 10 times as much at a hospital right across town. Or what about all of the issues surfacing with health care fraud? Those include the frequent instances of outrageous charges for something as simple as a pair of surgical gloves and the all-too-common miscoded, duplicate entry and up-charged services. To put this escalation in health care costs in perspective, consider this: Forbes reported on the rate of U.S. inflation as it compares to all items in the consumer price index (CPI) and to health care separately. With the exception of just one year (2008), the increase in health care inflation has been higher than the CPI for all items since Source: The Role of Self-Funding The thing with these constant price increases over the last 10+ years is that they are especially hard to keep up with for employers who have benefit plans through traditional carriers. Why so? Fully insured plans typically offer limited flexibility and few opportunities for plan savings and employee engagement. Self-funding, on the other hand, is a whole different story. It s become the most preferred type of health plan among U.S. employers. In fact, estimates show that upwards of 70% of employees who have coverage are now enrolled in a self-funded plan. The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 1

4 This ongoing shift is happening, in large part, because of the flexibility, savings opportunities and level of employee engagement self-funded plans offer. Read on to see how a plan managed through an experienced third party administrator (TPA) can have all these advantages. PLAN FLEXIBILITY Comparing Plan Structures By taking a side-by-side look at traditional, fully insured and self-funded plans, some of the fundamental differences become much clearer. The basics of a traditional, fully insured plan look something like this: Employer partners with insurance carrier Carrier offers standard plan Carrier determines set monthly rate Employer pays same rate on a month-to-month basis no matter how much is actually accrued in health claim costs Any profits and/or savings realized stay with the carrier A self-funded plan has a much different make-up: Employer partners with a TPA TPA works with employer to evaluate benefit needs by workplace A set monthly rate is eliminated Employer pays actual claim costs each month instead of a pre-determined rate Any profits and/or savings realized go back to the plan/employer The two approaches to employee benefits are almost completely opposite. While a traditional plan pretty much falls within the one-size-fits-all category, a self-funded plan can be fully customized by the company. What Does Your Workforce Need? The main goal of a full-service TPA is to match clients with a plan that makes the most sense for their individual business and the workforce they employ. Health benefit needs vary significantly among companies and industries, and it is most effective to consider them on a case-by-case basis. Along with taking the size and scope of each team into account, self-funding allows businesses the flexibility to: Add/update health benefit services as needed Many factors influence the type of benefits a business needs, ranging from the most prevalent health conditions plan participants experience to the type of industries served. While something like a dialysis management program may be crucial to one company and its work population, it may not be a necessity for another. This is The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 2

5 something that makes self-funding so attractive. The plan is custom-built by the employer and TPA working together so that the most appropriate benefits can be offered. Plus, as needs evolve, the benefits offered in a self-funded plan can, too. Offer services from specialty partners Since self-funded plans are far from traditional, they incorporate the latest thinking in health care and the partners who embrace it. Consider accessibility to providers and procedures for example. In today s on-the-go society, it can be hard for a busy family to get in to see their doctor for a same-day appointment. That s where relationships with specialty partners come in. Together, TPAs and specialty partners offer concepts like telemedicine that allow plan participants to receive quality care through digitalbased alternatives like phone, and video chat. Access Benefits Data & Act on It In a traditional insurance plan, employers often receive some cumulative data at the end of the year. While the numbers give an overview of what s happened over the last 12 months, they aren t as helpful after the fact. With a self-funded plan administered by a TPA, you can: Track and report on benefits data regularly Data is a big deal with self-funding. What if there was a pattern you could act on based on the numbers you were seeing in a month s or quarter s span? A certain health risk that could be addressed through a specialty program? Prescription costs that were starting to skyrocket? Our take on data: be proactive and stay ahead of the curve. Utilize predictive plan modeling Wouldn t it be nice if employers could plan for future health plan expenses? Predictive modeling makes this possible. With it, employers can use past and current claims data to analyze risks and forecast costs to come. They can follow claims trends and identify any areas of high risk. These findings can help crack down on any gaps in care and waste in health spending, too. PLAN SAVINGS Claim Costs: Fixed vs. Actual Let s go back to how costs are structured by health plan for a moment. In the traditional plan, employers pay a set monthly amount to the carrier regardless of what the actual costs are. So say your plan has a month (or several) with fewer claims than usual and the total costs are significantly less. Do you see that extra money? Not in a traditional plan but you DO in a self-funded plan. Why the difference? With selffunding, you are paying for health claims as they are accrued each month. That means you re not paying for extra fees or commissions built into a fixed monthly premium you re paying actual claim costs as they come in, and any savings realized stay right with your plan. The Cypress Solution TPAs use different strategies to help clients obtain the most savings with their self-funded plans. As one example, Cypress Benefit Administrators follows a proven four-step process that combines core The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 3

6 elements like risk management and data monitoring. It involves employers and employees throughout the various stages and starts with an emphasis on lowering claim costs from the get-go. Step 1: Health Claim Reduction/Elimination Step 2: Employee Information/Decision Assistance Step 3. Cost Management Step 4. Employer Data Management and Information/Decision Assistance Health Claim Scrutiny Why is reducing claim costs the first step? It s because this is one of the biggest opportunities to achieve savings in any self-funded plan. Careful claim review is something TPAs emphasize as there can be a number of issues that affect the accuracy of any given claim and drive the total charges higher than they should be. TPAs put several measures in place to take a comprehensive look at member claims and identify any problem areas, including everything from miscoding and duplicate charges to the services actually received and medical necessity. It s far from a simple process and pay approach where claims automatically go through without any examination. With claims specialists scrutinizing entries by procedure and completing line-by-line audits of hospital bills, mistakes don t just slip through the cracks. This in-depth analysis often leads to significant savings since the amounts recovered through individual claims varying from hundreds to thousands of dollars add up so quickly. Cost Control Solutions Along with much tighter tactics for paying the appropriate amount by health claim, self-funded plans also integrate a variety of add-on solutions that are meant to maximize cost control. A sampling of these customizable by employee group and plan includes: Prescription cost management Medical tourism Diagnostic testing networks Medical/case management On-site/near-site medical clinics Telemedicine Organ transplant carve-out insurance Dialysis and chronic kidney disease (CKD) management Cancer risk management With any self-funded plan administered through a TPA, the goal is to ensure the most value for every dollar spent. That s where programs like prescription cost management come in to help educate employers and members. In this example, employers learn about options for prescription benefits design and discount programs. Plan participants are being taught about the medications they are prescribed in an effort to stop the trend toward high-cost specialty drugs, and increase the utilization of traditional/generic alternatives. The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 4

7 Another example of a program that s gaining momentum with self-funding plans across the nation is onsite/near-site medicine. Employers are seeing how clinics at or near the workplace can save time and money and make it more convenient for employees to seek out the care they need because of improved access and proximity. Annual Cost Savings If you look at the overall data trends related to the expenses of employee health plans, a scary thing is happening. Health care costs continue to climb higher and higher. And in order to absorb those added costs each year, a lot of extra charges are being passed on to employees in the form of higher premium and deductible rates. But how long can this continue? Many TPAs are challenging this trend through the self-funding approach. In Cypress s case, the level of success has been pretty remarkable. These numbers tell the story: In 2015, health plan costs went up an average of 2.05% for Cypress clients and 5.69% nationally. Over the last five years, health plan costs have increased an average of 1.26% for Cypress clients and 6.2% nationally. The average PEPY (per employee per year) cost for Cypress clients was $9,372 in 2015 and $15, nationally. EMPLOYEE ENGAGEMENT Members Making Informed Decisions Added flexibility and cost savings are big draws when employers consider self-funding, but there s a third factor employers have found that makes these plans so desirable. It s the ability to involve employees and motivate them to take an active role in their health care and all the decisions that go along with it. In a traditional plan where an employer is paying a set amount for insurance coverage on a month-tomonth basis, there really isn t a major incentive for members to choose to have surgery at one facility over another. Even if that means facility A is going to charge 40% more than facility B for the same procedure. Put yourself in a self-funded employer s shoes and it s a whole different perspective. If an employee is given the information needed to make an informed decision as to why facility B is the better option upfront (high-quality care at a much lower cost), everyone benefits. The total billed is less, which means the employer pays a lower claim amount and the plan is able to benefit from these added savings. This is a big step in the right direction as employers work to maintain the costs of offering employee benefits. The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 5

8 Employee Advocacy & Wellness With an eye toward cost containment, self-funded employers know how confusing and complex it can be to navigate the health care system. That s why they work so closely with TPAs to find proactive ways to educate employees and give them the tools they need to be smart consumers in the decision-making process. A few examples of how TPAS and employers partner to put employee engagement in action: Medical/patient advocacy Many TPAs offer medical advocacy programs that connect members with professionals who can help pair them with the right providers and procedures. These programs offer one-on-one guidance for choosing specialists, getting pre-authorizations and finding the best-rated facilities. Employee wellness One way to keep the cost of claims down is to keep employees healthy. TPAs work with employers to customize wellness programs that incorporate on-site risk assessments, professional coaching, health challenges and more. Many of these programs are structured to include incentives for participation and health improvement. SELF-FUNDING & THE BIG THREE So many employers are feeling the crunch today when it comes to the cost increases being dictated by traditional benefit plans. For many, the time has come to take a long, hard look at the other options out there and re-evaluate. Self-funding doesn t fit every scenario, but for the companies it makes sense for (more than 70% and counting in the U.S.!), these plans often turn out to be real difference-makers. Consider the big three influencers flexibility, cost savings and employee engagement and how they could benefit your plan. The Top 3 Advantages of Self-Funded Plans Cypress Benefit Administrators 6

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