- INSIGHTS
Why Mid-Size Employers Are Moving to Self-Funding in 2024
65% of US workers are now covered by self-funded health insurance plans. For mid-size employers, the question isn’t if they should consider this shift.
It’s why they haven’t already.
From medical inflation to the unpredictability of traditional insurance models, employers face challenges in controlling healthcare costs.
Self-funding emerges as a solution, allowing businesses to control expenses, increase transparency, and manage risks effectively.
So, what’s driving the shift towards self-funding for mid-size employers? Let’s break it down.
1. Medical Inflation Is Out of Control
This isn’t new news but healthcare costs have risen dramatically in the last 13 years.
Driven by the post-COVID inflation surge, an aging population, the obesity epidemic, and the rising costs of specialty drugs and gene therapy.
For employers stuck in fully insured models, a $1 million problem is a $15 million problem in the next 10 years.
For brokers, this creates an opportunity.
Self-funded plans allow employers to take control of their healthcare spend by aligning their costs with their actual healthcare utilization, rather than paying premiums that fund the insurance company’s profits.
2. Unknown Claimants and Claims
In traditional insurance models, employers are blindsided by unknown claims. According to the Sun Life 2024 report, only 56% of claimants are reported through the renewal period, with 37% reported within 8 months.
This leads to unpredictability, leaving employers without a clear strategy to manage claims. Self-funding, on the other hand, provides transparency.
Employers gain access to real-time data and insights into their claims.
While they won’t know the personal identities of employees and patients—this information remains confidential to protect privacy—they will have access to anonymized claims data.
This allows them to see the treatments or conditions being covered, the costs, and any trends that arise.
With this, employers make informed decisions and take steps to manage healthcare costs.
3. Rising Frequency and Severity of Claims
The number of million-dollar claims has risen 50% over the past four years, with claims between $2 and $3 million growing the fastest.
This puts pressure on fully insured employers with no control over these costs.
Self-funding offers mid-size employers a way to manage these risks, with the help of a well-structured stop-loss policy.
By pooling resources with other like-minded companies in a consortium, employers protect themselves from the volatility of large claims while still retaining control over their healthcare plans.
4. Cost Savings Are Tangible
Self-funded plans can lead to significant cost savings, with estimates suggesting annual savings of 8% to 10% for employers.
For mid-size employers struggling to maintain competitive benefits packages while keeping costs in check, self-funding is becoming an increasingly attractive option.
5. It’s Perfect for Mid-Size Employers
Historically, self-funding was seen as a solution only for large corporations.
However, times are changing. Today, more mid-size employers discover that self-funding isn’t only accessible but beneficial for their business models.
With tools like AI-driven underwriting and access to consortium purchasing power, even companies with fewer than 100 employees now benefit from the advantages of self-funding.
6. Self-Funding Is a Long-Term Solution
Many brokers doubt recommending self-funding because it’s not an overnight fix.
However, for mid-size employers looking for a sustainable financial strategy, self-funding is the way forward.
It allows them to build a long-term plan that results in substantial financial benefits over time.
7. Risk Management Becomes a Reality
Self-funding isn’t without its risks, but it’s designed for employers who have the risk tolerance and cash flow to manage fluctuating healthcare costs.
By joining a private consortium, employers share these risks with other like-minded companies, gaining stability while still enjoying the benefits of self-funding.
While self-funding offers a powerful solution for mid-size employers to control costs and manage risks, the key to maximizing these benefits lies in the strategic measures they take.
Reducing healthcare costs requires going beyond traditional approaches and embracing new methods that ensure financial stability and quality care for employees.
Here are three strategies employers implement to achieve that balance.
3 Ways to Reduce Healthcare Costs (Beyond Traditional Methods):
- High Claimant Oversight: Early intervention is crucial when managing high-dollar claims. By closely monitoring significant medical conditions and using trigger reports, employers intervene early and explore cost-effective alternatives such as sourcing medications more efficiently or finding lower-cost care settings without compromising quality.
- Special Condition Enrollment: Specialty medications often drive up healthcare costs. Employers can enroll in charitable programs, Manufacturer Assistance Programs (MAP), and Patient Assistance Programs (PAP) that provide these medications at a reduced cost or no cost at all. This approach can lead to significant savings, with some employers paying nothing for these high-cost treatments.
- Reference-Based Pricing and Direct Contracts: By using reference-based pricing, employers can base healthcare reimbursements on actual costs rather than inflated prices. This strategy promotes transparency, helps reduce costs, and gives employees the freedom to choose their care providers. Negotiating direct contracts with providers also ensures that employers pay fair and necessary prices for the care their employees receive.
Why Virtue Health is Different?
Unlike public pools that allow anyone in, Virtue Health operates like a gated community.
We control who enters, ensuring that every employer aligns with our mandatory risk management and cost containment requirements.
We exclude misaligned partners like large PBMs who profit from high drug costs, and we ensure stability with innovative features like no new lasers, rate caps, and banded renewals.
References:
John W. Sbrocco
@johnwsbrocco
IF YOU’RE A BROKER READY TO…
Elevate your clients’ healthcare strategy with a long-term, stable solution, it’s time to consider self-funding.
