Employers who want to give their employees health care perks can choose between a fully insured health plan and a self-funded health plan. Even though the two approaches have a lot in common, they are also very different. Each has its own pros and cons. A fully-insured group health plan is one where the company buys the plan from an insurance company. The employer and employees pay the premiums and in exchange the insurance company takes on the risks of covering specific healthcare services. On the other hand, a self-funded plan also known as a self-insured plan is one where the health benefits are paid for by the business, not by an insurance company. In general, both fully covered and self-insured plans are governed by federal law. However, self-insured plans are not subject to state insurance regulations.
How Self-Funded Health Plans Work
Most companies hire a health benefits consultant or third-party administrator (TPA) to help them design benefits that meet the health coverage needs of their employees while staying within their budget. Most of the time, the consultant helps the company set up a plan document that explains what costs are covered, what costs aren’t covered, who can join the plan, how provider networks work with the benefits, and other important terms.
Instead of paying premiums to traditional health insurance companies. The business pays claims for services covered by the self-funded plan using the company’s own money and contributions from enrollees. Most of the time, the health benefits consultant or TPA helps the company figure out how much money should be set aside to pay for health care. It also helps decide whether the business should pay for the whole plan or just a portion of it. A self-insured business will usually set up a special trust fund to put money (from the company and the employees) aside to pay claims.
TPAs help companies figure out how much stop-loss insurance they need based on how much risk they are willing to take and, if available, their claim history. This coverage reimburses or even pays the company ahead of time when claims exceed individual or group thresholds that have already been set. Individual claims are covered by specific coverage, while claims made by a group are covered by bulk coverage. Most of the time, the employer hires a TPA to run the self-funded plan’s benefits, keep track of plan eligibility and membership, and do other administrative tasks.
Self-Funded Health Plan Requirements
Plans for groups of people who pay for their own health care are controlled by federal laws. These laws include:
The Employee Retirement Income Security Act (ERISA)
Health Insurance Portability and Accountability Act (HIPAA)
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Americans with Disabilities Act (ADA)
The Age Discrimination in Employment Act
The Civil Rights Act
As well as various budget reconciliation acts. Such as the Tax Equity and Fiscal Responsibility Act (TEFRA), the Deficit Reduction Act (DEFRA), and the Economic Recovery Tax Act (ERTA).
Self-Funded Health Plan Advantages
Self-funded health insurance gives businesses a lot of benefits, such as more freedom in designing plans, the ability to make benefits fit the needs of each employee, and possible cost savings.
Cost Savings
One of the best things about self-funded health plans is the chance to save some money. By taking on the financial risk or providing health insurance, you have more say over how the money is spent. This lets you discuss healthcare costs directly and cuts out the profit margin that insurance companies usually add.
With a self-funded plan, you only pay for claims when they happen. Instead of paying annual or monthly premiums for claims that may or may not be made, you only pay for claims when they happen. In short, you don’t have to pay for things you don’t use. Also, with fully-funded plans, a big chunk of the money you pay goes to the insurance company to run the plan. In a self-funded plan, you can pay a Third Party Administrator (TPA) much less to handle the plan’s administration.
Claims Transparency
With self-funded plans, you have direct access to information about claims. This level of openness lets you look at how people use healthcare, figure out what drives costs, and take steps like care navigation tools to save money. With access to detailed claims information, you can make smart choices and make sure that your health benefits program works as well as it can.
Benefit Options
With self-funded health insurance, you can make a benefits package that fits the needs of your business and your workers. This gives you the freedom to adjust coverage choices, wellness programs, and other benefits to fit your company’s culture and the health needs of your employees.
Data Access
When you pay for your own health insurance, you have direct access to plan data, such as claims information, demographics, and trends of use. This information gives you the power to make choices based on facts, find places to improve, and use targeted interventions to improve the health and well-being of your employees as a whole.
Flexibility
Fully-funded plans give you less freedom than self-funded plans. With self-funded plans, you have the freedom to change your benefits package, choose specific coverage choices, and make programs fit the needs of your employees. You will also be able to change your health plan whenever you need to. For instance, you can add or remove participants at any time, as well as move people to or away from particular providers. This gives you the freedom to create a rewards program that works for your employees and helps their health and well-being as a whole.
Self-Funded Health Plans Disadvantages
Self-funded plans can be appealing, but it’s important to remember that they come with risks and may not be the best choice for every business.
Cost Uncertainty
Self-funded plans don’t have set costs like fully-funded plans do, which have yearly or monthly premiums that can’t be changed. Costs will depend on how many claims your employees make and how much care they need. This makes it hard to plan and budget for healthcare from year to year because you never know what will happen. In the planning phase of a self-funded plan, budgeting becomes very important. This will rely on things like the age, location, and number of dependents of the employees. The most important factor is estimating how many claims you might get.
When thinking about self-funded health insurance, it’s important to look at your employees’ numbers and health risks. Self-funding may cost more if your workers have higher health risks or have had expensive medical treatments in the past. Doing a full analysis of the health of your employees can help you decide if self-funding is a good idea.
Overage Risks
You have to pay for all eligible claims, no matter how much they cost. Unexpected claims with high costs can affect your cash flow and put a strain on your funds. As was said above, there can be a lot of uncertainty with these types of plans, so it’s important to have enough reserves and risk-mitigation methods like stop-loss insurance in place to deal with possible financial risks.
Administration
Self-funded health insurance plans require more secretarial work than fully-funded plans. You will be in charge of claims handling, managing provider contracts, making sure that rules are followed, and making sure that reports are correct. This routine work can be hard, especially for small businesses that don’t have a lot of staff or money. It’s important to think about how well you can handle these duties. One way for businesses to save time and money is to hire a Third Party Administrator, or TPA, to handle these kinds of administrative chores.
How To Manage Self-Funded Health Plan Risks
Self-funding health insurance can be dangerous for some businesses. However, there are a number of ways to deal with the risks that come with self-funded plans.
Stop-Loss Insurance
Stop-loss insurance is a very important tool for self-funded health insurance to use to control risks. It protects you from huge claims by giving you money back for claims that are more than a certain amount. Stop-loss insurance lets you limit your financial risk and protect your business from claims that cost a lot of money.
Mitigate Risks
Risk mitigation techniques can help keep costs down and deal with possible risks. Some of these strategies are healthcare navigation services to help people find high-value care, utilization review programs to track how much health care is used and find ways to save money, and disease management programs to help workers with long-term conditions.
Regulation Compliance
The Employee Retirement Income Security Act (ERISA) has rules about health insurance plans that pay for themselves. It’s important to make sure that ERISA standards are met. Such as giving participants plan documents, summary plan descriptions, and yearly reports. Some parts of the Affordable Care Act (ACA) also apply to self-funded health insurance plans. For example, they must cover basic health benefits, provide free preventive care services, and meet annual reporting requirements. Self-funded health insurance plans must follow not only federal rules, but also state rules and reporting standards. To avoid fines or legal problems, it’s important to know the laws that apply to your state and make sure you follow them.
Group Health Plans With EZ
EZ can help you find a fully paid group health insurance plan if you don’t think self-funded is right for you. Call EZ to get free prices or to find out more about group health insurance plans. Our experts can help you save hundreds of dollars a year by finding the best plan for your business. You can reach one of our highly trained agents at 877-670-3531 or by entering your zip code in the bar above. We can help you with any questions you have and get you started right away.
If you own a business that employs fewer than 50 people, then you are not required to offer your workforce group health insurance – but that doesn’t mean that you can’t, or that you shouldn’t. Many small business owners find that having healthier and happier employees is worth the cost and the administrative headaches of providing a healthcare plan, some go even further: they offer multiple plan options for their workers to choose from. Going this route may not be right for every small business, but if you’re looking to keep a diverse workforce satisfied, then it might be right for you.
Employees prefer health insurance over a raise in pay, and it is a huge deciding factor for job seekers.
Offering Health Insurance: The Stats
If you’re not currently offering a healthcare plan to your employees, you may want to take a look at a few stats:
40%: The percentage of workers that say that healthcare is their number one priority when it comes to benefits.
88%:The percentage of job seekers who say that they would give health benefits “some consideration” or “heavy consideration” when choosing a job. 46% said it was a deciding factor.
56%: The percentage of people with employer-sponsored health benefits who say that whether or not they like their health coverage is a key factor in deciding to stay at their current job.
50-60%of a worker’s annual salary: The amount it can cost to find a direct replacement for them if they leave their position.
$4,000: The average amount it takes to hire an employee.
The numbers above should give you an idea of how important offering group insurance to your employees can be to recruiting, retention, and to your bottom line. Adding flexibility to your plan options can only increase those benefits.
Percentage of employees who offer one or more plans to their employees. 76% offer 1 plan type.
If you are currently offering one type of insurance plan to your employees, then you’re not alone. According to the Kaiser Family Foundation 2019 Health Benefits Survey:
76% of small businesses offer one plan type
20% offer two plan types
4% offer three or more plan types
If you’re choosing between plan types, you might want to take a look at a breakdown of what other small employers are choosing:
Point of Service (POS) plans: almost half of small employers – 47% – chose this option, according to a recent survey. POS plans are a hybrid of PPOs and HMOs: they have the lower premiums and primary care physician requirement of HMOs, but are slightly more flexible.
HMOs:This type of plan, which requires that employees choose a primary care physician, get referrals to see specialists, and stay within a narrow network, accounted for 26% of small business plans
PPOs: 15% of plans were this more flexible type, which have larger networks and fewer requirements than an HMO, but also have higher premiums.
Offering Plan Options: The Factors
Now that you know all the relevant facts and figures, and we’ve established that offering at least one plan is a good idea, let’s take a look at the factors that should go into determining whether you decide to offer more than one plan type.
The ages and health needs of your employees: If you’ve got a workforce completely populated by Millennials or X-ennials who are single, childless, and healthy, then offering a one-size-fits-all high deductible health plan might be a great choice for you. You and your young, healthy employees could both save money on premiums, and they could contribute money tax-free to an HSA. But if you have some older employees, or employees who need to visit their doctor often, then they would probably prefer a plan with a higher premium and lower deductible. Adding a PPO into the mix would probably work for them, especially because they might not want to have to see their primary care physician every time they need to visit a specialist.
Location: If your employees all live and work in one small area, then they might not need to pay extra for a PPO with a wide network. However, if you have a lot of commuters who are spread out over a large area, they may prefer the flexibility of a plan with a larger network.
Budget:You need to think about what both you and your employees can afford when it comes to choosing a plan. If you really can’t find it in your budget to contribute to higher premiums plans, then stick with offering a cheaper option – it’s better to offer one plan than no plan! On the other hand, if most of your employees are older and/or have families and are willing to pay for a more full-coverage plan, but you have a few younger, more budget-conscious employees, consider offering them a second, cheaper option.
There’s always a lot to consider when choosing whether – and how – to offer health insurance to your small business’s employees. If you need more input, turn to your employees themselves – you can always offer an anonymous employee healthcare survey so that they can tell you exactly what they want. And if you need still more help, turn to EZ! We can answer all of your questions about offering multiple plans (or anything else!), find you the best plan options, and get you super fast, accurate quotes, and we’ll do it all for free. To get started with us today, simply enter your zip code in the bar above, or to speak with an agent directly, call 888-350-1890.
If there’s one thing that we can all agree on, it’s that 2020 has been an unusual year, especially when it comes to healthcare. We’ve seen a once-in-a-lifetime pandemic, and we still don’t know what all the effects of it will be. Take, for example, costs for employer-based healthcare. If you’re an employer, you’re right to be wondering where your health costs are headed in 2021 – will they skyrocket? Level off? Maybe even go down? Unfortunately, the answers to these questions are not as clear-cut this year as they have been in previous years, but we can take a look at what some experts are projecting, as well as what you can do to help keep costs down.
This Year’s Cost of Care
Healthcare costs have surprisingly been down this year; spending anywhere from $75 billion to $575 billion less than expected.
To get a better idea of why predicting healthcare costs for 2021 has been so difficult, we need to take a look at what healthcare costs have been like this year. As you might expect, dealing with the coronavirus is expensive: California’s state ACA Marketplace, Covered California, estimated that the costs to test, treat, and care for coronavirus patients this year will be between $34 billion and $251 billion; America’s Health Insurance Plans predicts the cost will total $56 billion to $556 billion over a two-year period.
Even with those astronomical numbers, we can’t simply jump to the conclusion that insurance costs are going to skyrocket next year. It looks like the total costs of healthcare in the U.S. are actually down this year; in fact, one estimate is projecting that we will have spent anywhere from $75 billion to $575 billion less than expected on healthcare by year’s end. One actuarial firm is even saying that some self-insured employers could see a 4% drop in healthcare costs in 2021. How can that be? While the coronavirus has been an unexpected expense, in some cases, it has been balanced out – or even cancelled out – by the fact that many people are postponing or cancelling regular clinical care and elective treatments due to coronavirus.
But before we get too excited about a possible drop in healthcare costs, we need to look at what the experts are predicting. And, like everything else this year, it’s unusual: there are multiple possible scenarios for how much employer healthcare costs will rise.
Multiple Scenarios
So far, there are 3 possible scenarios as to how much healthcare costs will be next year.
Medical costs are one of the most vital bits of information for insurance companies as they figure out plan costs for the coming year. With this year being so much in flux, it is unclear what insurers are going to do; in fact, business advisory giant PricewaterhouseCoopers (PwC) has taken the unusual step of offering multiple scenarios for what could happen to employer healthcare costs in 2021. “This is an unprecedented report for us,” said Ben Isgur, leader of PwC’s Health Research Institute. “In the 13 years we have been doing this, we made a projection of the coming year and never felt the need to do scenarios.” Their 3 scenarios for 2021 are as follows:
Medical spending continues to stay low, with people opting out of non-coronavirus related care. In this scenario, costs would only rise by about 4%, which would be one-third lower than the average growth over the last five years.
Medical spending could be “medium,” and costs would rise at the same rate as they did from 2014 – 2020: around 6%.
Spending could be very high and result in a 10% increase in costs.
These numbers might not be across the board for all businesses in all areas: it might depend on where they are located and how much the coronavirus has affected their area. For example, businesses in an area that has been relatively unaffected by coronavirus will most likely see the usual increase of about 6%, while those with a surge in the virus, but a drop in people seeking care for other things, could see a rise closer to 4%. But if all of this other medical care gets pushed into next year? Then we could see a rise in healthcare costs of around 10%, which would mean the highest rate of medical-cost inflation since 2007.
For now, it does look as if some insurers are raising rates, and these increases seem to vary by plan type. For example, recent filings with the District of Columbia’s Department of Insurance, Securities and Banking related to small groups for 2021 show that Aetna filed for an average increase of 7.4% for health maintenance organization (HMO) plans and 38% for preferred provider organization (PPO) plans, while UnitedHealth proposed an average increase of 17.4% for its two HMOs and 11.4% for its PPO plans. They may be anticipating a surge in claims as 2021 gets underway.
A Surge Next Year?
Insurance costs could skyrocket next year due to people not getting treatment.
What many employers are concerned about now is that final, high-spending scenario. With so many people putting off necessary treatments, insurance claims could skyrocket in 2021 as people get sicker. Skipping out on preventive care could also present a large problem, as people may miss out on being diagnosed with underlying issues. “[Employers are] worried that some of these elective procedures will simply be bunched up next year and some people will be sicker next year … because certain things weren’t detected earlier,” said James Klein, American Benefits Council president.
Other things that could drive up costs? Increased coronavirus testing as employees return to work, prescription drug cost increases as pharmaceutical companies work on coronavirus treatments, and higher operating costs for hospitals and physicians as they try to keep up with the need for protective gear. Finally, let’s not forget that, as people struggle with isolation and anxiety, mental health costs will probably continue to rise – and now is certainly not the time to skimp on mental health care benefits for your employees.
What You Can Do
If costs do end up rising significantly, it might seem like the best thing to do would be to choose plans with higher deductibles or contribute less to employees’ premiums, which would pass some of the costs onto them. This may help to reduce your spending in the short-term, but it’s probably not the best long-term strategy. Studies show that putting more of the cost of healthcare onto your employees actually discourages them from seeking preventive care: for example, families with a higher deductible are less likely to take their children to see the doctor, even if the visit is free. In the long run, this could mean that your employees and their families will be less healthy, which could mean higher healthcare costs.
So what should you be doing to help manage healthcare costs and keep your employees healthy? Here are a few strategies:
Probably the best thing that you can do right now – and continue to do in the future – is to offer telemedicine as an option to your employees. Virtual healthcare exploded in popularity during the pandemic, and many patients love its convenience, while many employers love how cost-effective it is. Speak with your insurance company and make sure that they will continue to cover it – and encourage your employees to take full advantage of it.
Healthcare technology doesn’t have to end with telemedicine. You can offer “virtual chronic care solutions,” which can reduce the need for regular doctor visits. This could include things like Bluetooth-enabled glucose monitors that link with smartphone apps.
Instead of raising costs for your employees, try narrowing the network included in your plan. If your employees are already happy with their covered doctors, it may not be necessary to include a wider range of providers.
Speak to your insurance company, or one of our knowledgeable agents, and have them help you examine your employees’ healthcare costs. For example, are their providers jumping right to expensive tests and surgeries, or are they more likely to start with effective preventive measures?
The only thing we know right now about 2021 healthcare costs for employers is that we don’t know a whole lot. Right now all you can do is move forward on the assumption that costs will go up, as they do every year, and try to find ways to keep costs down. The best way to do that? Contact EZ, and speak with one of our agents. They can give you cost-saving tips, and can also find you a great plan at a great price – and they’ll do it all for free. To get started, enter your zip code in the bar above, or to speak with an agent directly, call 888-350-1890.
If you’re a newbie shopping for group health insurance for your small business, how are you feeling about the whole process? Confident? Nervous? Confused? We get it, there’s a lot of feelings to feel when it comes to picking a plan. But we’re here to guide you, and steer you past some of the common surprises and pitfalls that may come your way.
You Might Need More Info Than You Thought
Conduct an anonymous employee health survey prior to shopping, so that you know what your employees want in a plan.
We’ll start you off with an easy one. When it comes to getting accurate quotes, you used to be able to simply provide the age ranges of employees. Now you need to have their exact date of birth, as well as the dates of birth of any spouses or dependents they want to cover. Don’t be caught fumbling around for info, make sure you’ve collected all of your data before even looking for a plan. We would suggest conducting an anonymous employee health survey prior to shopping, so that you have all of the facts at your fingertips, as well as a good idea of what your employees are looking for in a plan.
A Provider You Thought Was Covered Isn’t
A lot of people are attached to a certain doctor or healthcare provider. When choosing a plan, you need to pay close attention to the network that is offered, especially since many plans are reducing the size of their networks to cut insurance costs. You could end up with unhappy employees who are unwilling to enroll in your plan if the network is too small or if their doctor isn’t included. And if this is your second time offering insurance, pay extra close attention to any changes made to the network; plans can change from year to year, so the providers that you were sure were covered, may not be.
Your Employee Isn’t Eligible
Employees are usually required to work at least 30 hours to be eligible for certain plans.
This one might really come as a surprise. You’ve decided to offer healthcare to all of your employees, but that doesn’t mean that all of your employees are eligible. The state your business is in, your insurance company’s rules, or even the policy you choose can dictate the number of hours an employee must work to be eligible for your plan. Employees are usually required to work at least 30 hours to be eligible for certain plans; they must also satisfy a waiting period before they are covered. It could be disastrous to extend coverage to an employee who signs up, only to find out later that they were ineligible for the plan. They could end up saddled with a giant medical bill even though they thought that they had insurance.
You Need to Communicate with Your Employees – A LOT
Keeping your employees informed about their health coverage is not a courtesy, it’s an absolute must. You need to provide a Summary of Benefits Coverage (SBC) to participants and beneficiaries prior to enrollment in the plan, at renewal of the plan, within 90 days of a special enrollment period, and within 7 business days of a written request.
You also need to give each employee covered under the plan a Summary of Material Modification (SMM) when there are changes made to their health benefits. We know, that sounds like a lot of paperwork, but it’s important that you familiarize yourself with all of these notices. Remember, EZ’s agents can help you manage all of the crazy insurance admin that you have to deal with!
Prescription Drug Pricing Is Complicated!
If your employees are counting on prescription drug coverage in their group health plan, then you’re going to want to take a closer look at how your chosen plan covers medications. All drugs are priced differently, and generics cost less than brand name medications, but what you might not know is that the same drug may be priced differently by different insurance companies. The same drug might even have a different copay on different plans with the same company. Familiarizing yourself with different plans’ drug formularies can help to cut down on prescription price surprises.
One more thing that you might not have realized in regards to prescription drug coverage is that some plans now actually have a separate drug deductible. Just as with a general deductible, your employees would have to meet a set amount of drug expenses out-of-pocket before their plan would begin covering the cost of prescription medications. Again, this is where an employee health survey would help to give you an idea of what your employees need, and what you need to avoid when looking at healthcare plans.
A High Deductible Isn’t Always a Bad Thing
Yes, a high deductible can sometimes be a burden to employees, especially those with lower incomes, and you might think that if you’re providing healthcare you should avoid any plans that might pile high out-of-pocket costs onto your employees. But you might be surprised to find that some employees actually prefer these lower premium plans, especially if they rarely use medical services and are just looking for a safety net in case of emergency. This is especially true if you pay a higher percentage of their (low) premiums (meaning you’ll still be saving money), choose a plan that is HSA-eligible, and then contribute to those health savings accounts. HSAs have tax advantages for both you and your employees, and having that money put aside means that employees will be able to cover a surprise medical expense.
The list of things you need to know about healthcare plans as an employer can seem endless, and it may feel like you are constantly being surprised by some new rule or protocol. But we promise, you’ve got this! And we’re here to support you, simply contact one of EZ’s knowledgeable agents and you’ll have all the answers to your insurance questions at your fingertips. We can also sort through all of the plans on offer and get you instant, accurate quotes so you can find the best plan for your business and your employees – and we’ll do it all for free! No hassle, no obligation, and no surprises!To get started with us, enter your zip code in the bar above, or to speak to an agent, call 888-350-1890.
What comes to mind when you hear the term “cafeteria plan”? Lunch! Well, these plans have nothing to do with what’s on the menu. “Cafeteria plan” is the informal name for Section 125 of the Internal Revenue Code, which allows employers to offer a la carte benefit options to employees. Employees can choose which of the offered benefits are right for them, and pay for them pre-tax.
What Are Cafeteria Plans?
Offer your employees more options of health insurance with a cafeteria plan.
Just like walking through a cafeteria and choosing dishes, with a cafeteria plan, employees can decide which healthcare options they want. Examples include vision, dental, or HSAs/FSAs. It is important to note that cafeteria plans are not a type of health insurance. They are a way to let employees use pre-tax money to pay for the types of coverage they choose.
To qualify as a cafeteria plan, the plan must include:
At least one qualified pre-tax benefit – these can include things like HSAs and FSAs, which allow employees to put aside pre-tax money to pay for medical expenses throughout the year
At least one qualified taxable benefit – for example, an employer may allow employees who don’t want any of the offered benefits to choose a cash alternative as part of their salary. This is in contrast to traditional group plans, in which an employee isn’t compensated for opting out of coverage. This cash will, however, be taxed.
The Advantages of a Cafeteria Plan
Cafeteria plans are an attractive option for a diverse workforce that is used to having choices. For employees, not only do they get to choose only the benefits that are right for them, but they also get significant tax advantages. They can contribute pre-tax, thus saving money. Because they are taking pre-tax money out of their pay, their paychecks will be smaller, and they will end up paying less in taxes.
For employers, there are a few main advantages:
Employees with smaller paychecks mean paying less in payroll taxes.
Employers may be able to attract and keep staff with a personalized benefits plan.
Unused FSA funds remain with the employer.
The Disadvantages of Cafeteria Plan
For employees, there aren’t many big disadvantages to having a Section 125 cafeteria plan, but there are a few things for them to remember:
Employees are locked into the plan they choose for the entire year – with only a few exceptions,One disadvantage of a cafeteria plan is that employees are locked in for a year.
employees must wait until the next enrollment season to make any changes
If employees choose a benefit like cash in place of coverage, they will incur a tax penalty.
Any funds put aside but not spent by the employee are forfeited – employees need to decide how much money to put aside at the beginning of the year, and they may not always get it right.
For employers, the main disadvantage of offering this type of plan to employees is the hassle. Because they are so individualized, they can take a lot of time and expense to manage.
Remember, whatever plan you’re considering offering to your employees, we can help sort through the mess. EZ.Insure is here to connect you to your own personal agent who can steer you in the right direction – for free! You will never be hounded by endless calls and you will always get the most accurate information. We promise everything will be quick, easy – and did we mention, free? To get started simply enter your zip code in the bar above, or you can speak to an agent by emailing [email protected] or calling 888-998-2027.
For employers, there are a few main advantages: