04 Nov Top 3 Funding Methods to Combat Healthcare Costs
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Top 3 Funding Methods to Combat Healthcare Costs
There are many options in the marketplace for employers when it comes to selecting a healthcare model. While it’s important to evaluate the best fit for your employees, there are a few methods that are above the rest, explained Bill Shimp, a Consultant at ClearPath Benefits Advisors. The top three methods are level-funded (self-insured plans), purchasing coalitions and referenced based pricing.
Every plan is different, but there is bound to be one right for you and your employees. In this article, we will address each. So, let’s jump in.
Level Funded
This plan is a hybrid between a fully-insured plan and a self-insured plan. You are legally self-insured, but it provides employers with a set monthly cost that doesn’t fluctuate.
“A level-funded plan is a great alternative for those that are transitioning from fully insured to self-insured,” Bill said. “It gives them the benefits of being self-insured without the cash flow volatility that a traditional self-insured plan will have.”
Small employers can see the most benefit from level-funded plans. Being self-insured may involve greater risk for an employer, but it also allows for greater savings. With level funding, small employers can hit more of a middle ground, gaining a bit more security than being self-insured while still maintaining lower costs than being fully insured.
Purchasing Coalitions
Purchasing coalitions, which are also commonly referred to as captives, allow an employer to be part of a pool of similar employers who are self-insuring their plan. For example, if you’re an employer with 150 employees, rather than attempting to purchase stop-loss coverage based on that population, you would be part of a coalition that could have thousands of employees in it. This enables a stop-loss provider to look at the entire coalition, providing an employer with better long-term pricing stability.
“There is safety in numbers, and you’re not being rated on a standalone basis as much you are if you purchase stop-loss coverage as an individual employer in a stop-loss marketplace,” Bill said.
It’s not always advantageous for an employer to join a purchasing coalition, but it’s an option that should be evaluated on an annual basis.
All that said, purchasing coalitions are not a solution to designing your plan effectively. It’s an alternative for how to fund the risk of insuring those claims. Great plan design starts with a great benefits consultant.
Reference-Based Pricing
This is a self-insured funding method where the employer determines what the provider will pay rather than the insurance company determining what the provider will be paid. The savings from this method can be anywhere from 20-40% compared to the current method of pricing.
The cost is figured by the price of Medicare versus the price the insurance company has negotiated. The current market scenario is that insurance companies negotiate with the providers as to what the price will be, and for a self-insured client that cost is passed through to them. “Reference-based pricing is a plan where the employer does not have a network,” Bill said. “So when someone receives care, that provider is then paid the Medicare reimbursement rate, plus the percentage that can vary from 30-40% on top of the Medicare rate.”
ClearPath Can Help
ClearPath is the largest, privately-held and locally-owned employee benefits consulting firm in Columbus. We have access to a wide variety of relationships with the outside marketplace, so we can bring all of these options to the table for our clients. Currently, we have access to more than 30 captives and purchasing coalitions – some are self-insured and some are fully-insured.
ClearPath’s clients not only have access to these relationships, but they also will be consulted by knowledgeable, experienced and successful plan advisors like Bill, who has helped 80% of his clients with 100 employees or more become self-insured.
Bill has extensive experience working with clients that are either currently self-insured or clients who are interested in becoming self-insured. He is able to identify for them whether it’s a good fit, and if so, what the proper safeguards are needed to make an effective transition.