With 10% to 12% annual increases in health insurance premiums compounding to effectively double the cost of coverage for small and midsize businesses over the last decade, some of these organizations have decided to adopt the strategy that large employers have used to mitigate the impact of health care inflation: self-insurance. By self-insuring, employers pay only their own claims and for the costs of administering them, no longer contributing to insurers' profit margins or subsidizing the cost of insurance for other employers with less healthy employee populations. Self-insurance also can help insulate smaller and midsize employers from some of the impact of the new health care reform law, which is expected to drive up premiums even further by adding costs to insurers that will work their way into premiums. Self-funding also gives employers access to their individual group's claims and health care utilization data so they can strategically direct cost-containment efforts. ›› More

Companies with fewer than 500 workers expect new coverage requirements under the health care reform law to add about 3% to the cost of health insurance, pushing premiums up nearly 12% in 2011. The projections for large, self-funded employers are slightly less, averaging between 1.0% and 1.9%. The health reform provision that will cost employers the most is extending coverage to adult children up to age 26, followed by elimination of lifetime limits on benefits. ›› More

Employees' share of health care benefits costs surged 14% in 2010 as cash-strapped employers passed on more of the cost to workers. As a result, employees paid nearly one-third of the cost of family coverage and almost 20% of the cost of single coverage. Since 1999, the share of health care premiums paid by employees has increased 159%, while the cost of employer-sponsored health care benefits has grown 138%. ›› More

A health care reform rule that requires insurers to pay rebates if they do not spend the prescribed amount of premiums collected on medical care and health care quality improvement could cause headaches for fully insured employers, creating another argument in favor of self-insurance. Employers that share the cost of coverage with their employees will have to share any rebates they receive proportionate to employees' contributions. Because the rebates will be calculated on a state-by-state basis, employers could face employee backlash if employees in a state not issuing rebates learn that their colleagues in a neighboring state are getting part of their premium contributions refunded. ›› More

Some health care experts are concerned that Accountable Care Organizations authorized under the health reform law may increase prices on services they provide to private-sector patients to meet the cost-savings targets necessary for them to receive bonus payments from the Centers for Medicare and Medicaid Services. If that happens, it will only serve to exacerbate the public-to-private payer cost shift that occurs every time the government cuts Medicare funding. ›› More

Health care reform regulations that limit insurer administrative expenses are bringing to light the lucrative extra compensation that agents and brokers have been pocketing for decades. Brokers that bring large volumes of business to certain insurers have received bonus payments. Some critics of this practice say it has discouraged some less scrupulous brokers from recommending employers that may be candidates for self-insurance to consider that option. ›› More

Setting up a self-insured health care program is not as difficult as it might seem, though employers must be careful to avoid missteps. The most critical element for an employer preparing to implement a self-insured plan is selecting a broker or third-party administrator with the right package of provider networks, services and accessibility; such vendors will be the primary point of contact for most transactions and communications. Additionally, employers should be sure to evaluate their workforce's demographics and claims history before securing stop-loss insurance to protect against catastrophic claims. ›› More

As insurers separate commissions from premiums to meet new minimum medical loss ratio requirements under health care reform, brokers are being forced to seek compensation directly from their clients. To justify their pay, many have begun offering self-funded alternatives to their smaller and midsized clients for the firs time. While just 25.7% of employers with fewer than 500 employees currently self-insure, that percentage could grow if attractively priced stop-loss coverage at lower attachment points were to become widely available, predicts a government report. ›› More

While self-insurance can be a solution for many employers, it's not for the faint of heart. Self-insurance works best in organizations where management understands and supports it as a financial strategy aimed at lowering costs by retaining more risk and controlling how and which health care claims are paid. Some employers may be more comfortable transitioning to self-insurance by gradually raising deductibles or participating in pooling arrangements or captive programs with other organizations that have similar risk tolerance levels. ›› More

Self-insurance doesn't necessarily mean going “bare” with no coverage, writes Craig I. Hasday, president of Frenkel Benefits L.L.C. Employers can purchase a form of excess insurance that will pay claims above the amount they feel comfortable handling themselves, he explains in an article addressing the specifics of medical stop-loss insurance. ›› More

Rising health insurance premiums has meant rising commissions for brokers and expanding profit margins for insurers, making some brokers hesitant to recommend self-insurance as a cost-containment strategy, suggests Mike Turpin, executive vp of USI Insurance Services. And because many smaller agents and brokers don't have the technical resources to establish self-insurance programs, they may be steering clients away. ›› More

Insurers haven't been giving fully insured employers full credit for effective wellness initiatives if they have fewer than 1,000 plan members. Instead, the experience of these smaller employers is being pooled with that of other similar-sized employers as part of the “community rating” practice. While this arrangement benefits employers with a lot of unhealthy employees and bad claims experience, it penalizes employers that have healthier workforces. It also has deterred many small and midsized businesses from instituting health risk management initiatives. ›› More

An employer considering self-funding employee health benefits should conduct an in-depth analysis of its motivation for making the switch to ensure that its risk tolerance and financial situation can support such a move, advises Maria Harshbarger, mid-market segment leader of Chicago-based Aon Hewitt Inc., who outlines some of the key questions middle-market companies should ask themselves. ›› More

Self-insuring gives employers access to claims and health care utilization data that can be used to identify health risks within their populations and develop targeted health risk management programs to mitigate them. By keeping healthy employees healthy, reducing the incidence of lifestyle-driven diseases and better managing chronic conditions, self-insured employers can effectively lower their health benefit costs over time. While the impact of wellness programs often takes several years to be seen in the aggregate cost of health care, it can have an almost immediate impact on improving employee morale and productivity while in some cases even reducing workers compensation costs. ›› More

When an employer elects to self-insure, it also must decide between two distinct administrative options: an “administrative services only” contract with an insurer or a third-party administration contract with a TPA, a company that manages self-funded benefits arrangements. Kristi Gjellum, an account executive at brokerage IMA Inc. in Denver, describes the advantages and disadvantages of each of these arrangements to help guide employers in making the decision that's right for them. ›› More

Mid-market companies are discovering that group captives can make self-funding employee health benefits a bit less daunting, experts say. Captives can provide a primary layer of medical stop-loss coverage that would be tapped before traditional stop-loss insurance. ›› More

Many stop-loss underwriters providing medical excess coverage will consider effective wellness and disease management programs in calculating premiums, but few have gone as far as New York-based Chartis Inc. did when it formally endorsed the MedEncentive "information therapy" program, a web-based health care cost containment system that rewards both doctors and patients for adhering to evidence-based care and healthy behaviors. ›› More

Self-funding health care for employees can be an effective money-saving tool for mid-market employers. However, failing to thoroughly account for high-risk employees can quickly sabotage a self-insured plan, as one employer learned. Stop-loss insurance can provide relief in the event of a catastrophic claim, but smaller companies should expect carriers to insist on higher attachment points (the level to which an employer is responsible for paying a claim) for any employee already diagnosed with a serious illness or determined to have a higher probability of contracting one. ›› More

One mid-market employer, Crescent Directional Drilling, found that choosing the wrong vendor to manage a self-insured health care plan can seriously undermine the program's ability to generate savings. Beyond accessibility and quality of service, employers should carefully examine a broker or TPA network of providers and vendors to ensure they have the necessary market share to accommodate the workforce, especially if it is spread across multiple locations in different regions of the country. Regularly evaluating a broker or TPA's performance, offerings and cultural fit can prevent employers from finding themselves in partnerships that suddenly can't meet their needs. ›› More

Some creative employers found they could transition to self-insurance and save at least 15% by purchasing fully insured high-deductible plans and then self-funding part or all of the deductible. However, when their insurers discovered what they were doing, they retaliated by setting requirements for how much of the deductible they would allow employers to self-insure. ›› More