According to current Census Bureau statistics, 99% of the 5.6 million employers in the United States have fewer than 500 employees. Small and mid-sized employers are the backbone of our country’s economy and, while in the past this may not have been the case, today we’re seeing that they have a significant impact on the healthcare space. If you’re one of the 99%, let’s talk.
Over the last several years, the major healthcare carriers have realized that small and mid-sized markets were being underserved in relation to options in healthcare. My colleague Kevin Davis will often quote Plato in saying, “necessity is the mother of invention.” We can certainly see this through the development of level-funding programs and the innovation brought to the market in the healthcare space by private businesses. More and more the needs of small and mid-sized employers are being recognized. So how do we make the most of it?
It comes down to developing long-term goals and putting a strategy in place to get there. Let’s take a closer look on two forms of self-funding and how to make the most of them.
One attempt at meeting the needs of small businesses has come from the carriers in the form of level-funding. You’ve probably heard of this already so I’m not going to bore you with how it’s defined or underwritten. However, when a business is the right fit, level-funding can provide tremendous relief as it relates to costs, increase the level of data an employer can get, and can create an opportunity for surplus reimbursement at the end of the plan year. But, is that in itself sustainable? We are still seeing many clients in level-funding programs approach their renewal with yet another increase in rates. We don’t want to see these employers put in a cost-shifting position, watering down their benefits in order to save money.
Employers need a more sustainable strategy. With the right planning, level-funding can be a great solution and one I recommend to many of my clients. However, to make it a sustainable solution, I might advise that an employer actually invest their surplus to build a Health Reimbursement Arrangement (HRA) strategy that can improve the lives of their employees. Depending on an organization’s risk tolerance, it may make more sense to include “gap insurance” to offset the deductible, helping employees save on out of pocket costs. There is no one-size-fits-all solution. The point is, as a broker partner I know I need to be creative and act as a strategic business partner to help my clients think long term.
Another alternative funding strategy is a self-funded consortium. Investopedia defines a self-funded consortium as one that “pools together financial resources from member organizations to cover claims while collecting premiums and administering the plan itself.” This pooling together creates an opportunity to contain costs as claims and risks are spread out over a larger number of employees. One consortium model Univest works with is called The Veris Consortium. Veris created a way for small and mid-sized employers to reap the benefits of being self-funded (lower costs, data transparency, more control, etc.) while having the security and predictability of set monthly premiums and less risk exposure.
Keep in mind, a true self-funding model will fluctuate based on claims in any given month. In that model you could be paying more, you could be paying less. To live up to its self-funding roots despite having set monthly premiums, Veris allows for 100% of any surplus in a plan year be credited back to you as the employer to apply to the next years’ premium. This consortium model is worth evaluating when your goal is to provide the same level or better level of benefits to your employees without breaking your budget.
Warren Buffet once said that, “someone’s in the shade today because someone planted a tree a long time ago.” If you’re sick of being surprised by a high renewal year after year and if your employees are suffering as a result of watered down benefits or increased cost sharing, it’s time to end the reactive approach to managing your healthcare spend and it’s time to start planning for the future by investing in a funding strategy that works for your organization. If you are looking for a partner that values a long-term approach please give our Employee Benefit Consultants a call at 215-362-7000.
Insurance products offered through Univest Insurance, LLC, a licensed insurance agency affiliate of Univest Financial Corporation, are obligations of and underwritten by unaffiliated insurance companies. They are not insured by the FDIC or any other agency of the United States and are not deposits of or guaranteed by any bank.