Does your company offer Group Health Insurance? If yes, you may be able to save 20-40% on your health insurance premiums by switching to Alternative Funding!
What is Alternative Funding?
Some small businesses in order to save money on their group health insurance plan will elect to self-insure or self-fund. This is known as self-funding. It is the same program governments and large corporations use for their group health insurance plan. Why do they do this? Because if the plan is profitable the company can save a lot of money on its health insurance costs.
There are some serious drawbacks to a self-funded plan though. Many smaller employers don’t want the fluctuations in costs from month to month associated with a self-funded plan and they don’t want to be on the hook if an employee has a major claim costing hundreds of thousands of dollars.
To help fight the rising costs of health insurance many small businesses are electing to use Alternative Funding versus an ‘off-the-shelf’ traditional group health insurance plan or versus a self-funded plan.
Alternative funding is no riskier than offering in a regular group health insurance plan to employees. With alternative funding, your company — not the insurance company — benefits when the plan shows a profit. Small business who elect an Alternative Funding plan institute several initiatives as a result to reduce claims against the health insurance plan. Initiatives like TeleMedicine, which reduce trips to the doctor’s office, save thousands of dollars per year in claims.
Isn’t it risky for a company, especially a smaller company, to use Alternative Funding for its health plan?
No! The health insurance companies have taken those risk elements, often associated with a self-funded plan, out of the Alternative Funding plans.
What are the cost benefits of an Alternative Funding group health plan?
The Alternative Funding program available allow small business to experience cost savings when the plan is profitable. These plans have the safeguard that the overall premium will be no more expensive than a regular ‘off-the-shelf’ group health plan. If the employer has good demographics, encourages wellness, and implements some simple initiatives (like TeleMedicine) the resulting claims savings have a direct impact in reduced premiums. Plus the small business doesn’t have to wait until the end of the plan year to see what the premium reduction.
If you have fairly healthy employees and are currently using an ‘off-the-shelf’ group health care plan your premiums are going to support small business groups that aren’t healthy and have high claims.
Having healthy employees drives the costs down with an Alternative Funding Plan and you, the small business, pays less premiums immediately.
Alternative Funding plans also eliminate the surprise factor of large rate increases. The health insurance company shares claims data with you as the employer so you know exactly what is going on in the plan. Whereas in a ‘off-the-shelf’ plan 60 days before the plan’s renewal the health insurance company will tell you what the rates will be for the next year. When these rate increases are outrageous, as they often are, you can be left scrambling trying to switch health insurance plans at the last minute. With alternative funding, there are no surprises because you know how the plan is running during the year, so there’s more predictability as to what your pricing is going to be year to year.
What are the other benefits of alternative funding?
Employers have access to underlying claims data, which provides information on how employees are using the health plan without disclosing specific employees’ or dependents’ information as protected under HIPAA.
Having access to that data allows employers to really understand the underlying costs. Based on the claims information, the employer can install wellness programs, TeleMedicine, and other initiatives to help reduce claims.
Another benefit is the elimination of state mandates, which can account for 5 to 10 percent of premium costs. If a state mandates coverage of bariatric surgery and you have a young, healthy population, the flexibility of plan design can help you avoid that mandate. You can also reduce your premium tax, as the tax will only be based on about 25 percent of the premium, versus the 100 percent in the case of fully insured premium, allowing that savings to come directly back to the employer.
Finally, because you’ve unbundled the components of the plan, the insurance company is showing you the actual cost of each component instead of having it all rolled up into one rate.
Why are more smaller businesses choosing Alternative Funding?
Employer groups are spending a lot of money per employee for health care, and a lot of them are facing large increases and asking why. Employers are saying, ‘I don’t understand it. My employees don’t go to the doctor, no one’s been hospitalized. I want to see the data that shows actual utilization, and I want to see the underlying cost of what is driving the rate increase.’
It’s like the difference between your electric bill and your cable bill. With the cable bill, you pay the same amount regardless of usage. But with utilities, you can control your usage and you only pay for what you use.
What should a company consider when deciding to switch to an Alternative Funding plan?
Regardless of industry, a company should look at its underlying claims cost, whether it has a high-risk business or low-risk business, whether its employees are older or younger.
If you’re in a ‘off-the-shelf’ plan, the insurance company will apply a certain creditability to your claims experience, so if you have had bad claims, the pricing in the next year will be higher than normal. If your claims have run favorably, they may be less than the average.
In our experience, once a small business understands Alternative Funding Group Health Insurance the owner of the company often asks, “Why wouldn’t we do this?”
To learn more about Alternative Funding Group Health Insurance Plans call Bryan at (480) 442-5592.