Are Fully Insured Health Insurance Programs Obsolete?

The old world died a few years ago, so it’s time to quit thinking in the same terms as you did before…………

February 1, 2018

By Greg Bass

You know, it’s me again, so here we go-please be patient.  There are couple of things that are certain in life, there is a beginning and an end to everything.  Just because we don’t know when these events will occur doesn’t mean that when they do, it is not truth.  Follow me?   This discussion is particularly important for employers who have anywhere between 10 employees to 200 employees on their health benefit plan.  Therefore, for those of you who read it, feel free to send it to those employers if you, of course, feel it is appropriate.

So, let me phrase to you a question that might make some sense, and that might bring this discussion to an essential, and meaningful beginning.  Does anyone remember when Workers’ Compensation programs didn’t offer a dividend of some kind?   Now, believe me, I don’t know very much, and I do very little with Workers’ Compensation programs; but I believe it is true that if you ask an employer this question:  “Would you buy a workers’ compensation program that does not feature a dividend or some type of monetary return program?”  The answer blantly and loudly would be “No.”

Well, guess what?  Let me ask another question then for all of you, even the nay sayers, “If you could buy a program that guarantees your risk maximum, including all of the fixed fees, claims fund, commissions, etc. And that program was stated in guaranteed maximum rates, just like a fully insured program; but it provided the possibility of surplus or monetary return, wouldn’t you buy it? ”   Also, let’s be clear, you know that when any program falls into the ERISA plan category there are distinct advantages over fully insured programs, right?   You get data that indicates performance (wow isn’t that a new idea-facisious I know). You get to see how your rates are structured, what’s in them by item and by pricing element (wow, isn’t that a new and innovative idea-facisious I know).  You get to negotitate the level of risk (stop loss position) you’re taking, it is not, like pooling points, dictated to you. And, by the way, you know what it is before you buy it. You don’t find it out at renewal time, when your broker discloses that, “Oh yeah, you see your experience was bad, and you are responsible for big claims up to $50,000-$75,000-$100,000 in your renewal experience.”  Well, that’s nice to know right?  You also get to understand the contract terms, 12/12;12/15;12/18 etc.  as well as the total amount of fixed cost vs: the amount of a claims fund (wow, now that really is a new and innovative idea).  Therefore, guess what, we’re really talking about DISCLOSURE AND TRANSPARENCY-My goodness we really have broken new ground now right?   Isn’t that the way we buy all of our other stuff?  The car salesman doesnt’ say, now, here’s this beauty.  It can fly.  It gets great gas mileage. It seats 7 people.  But “Oh no, you can’t look under the hood-no-you can’t put it up on a lift to see what’s underneath!”   We’d all walk out right?

So, aren’t you really, really, tired of the following:  1) Oh no, you can’t get the underwriter’s renewal calculation sheet, that’s only provided to larger companies who are more “credible”. 2) Oh, you didn’t know you were pooled?  Well, you know if I (your broker) would have allow you to be set up as non-pooled group, that big claim you had in your experience would have gone against your experience, and then the pool wouldn’t  have had the impact on your renewal rating that it did!”  But you the employer  know that , “Last year when I didn’t have a big claim you said that the POOL drove my ratings up, because my group isn’t large enough to be credible?”  So, what gives- they got you coming and they got you going. 3) Well, your group is just not big enough to be self-funded.  It’s far too risky!  And you say, “Well, I’m looking at these new innovative plans called Level Funded Premium plans and they look just like fully insured plans with guaranteed maximums and everything-so what’s wrong with that?”  The real answer is-nothing-but I don’t sell them and I don’t get them. So, it goes on and on and on.  As the employer, aren’t you just sick and tired of being shown the same insurance carrier alternatives every year, the three or four big guys?   You want to know, don’t you, isn’t there anything else out there?

Well, the news is there is.   This is what many, many, brokers out there don’t know; or they don’t want to tell you; or it’s in their best interest for you not to know.  PPACA-otherwise known as ObamaCare, turned the insurance world upside down.  It not only placed provisions and restrictions on employers, but it also placed  major restrictions on insurance carriers.  No more health underwriting. No more 21-22 rating categories build off a census- now less than 1/2. No more underwriting by county or by zip code-now only 4 to 5 regions per state.   The level of benefits was no longer theirs or yours to define, it dictated levels of benefits ( somewhere between a 12 to 15% cost increase by the way).  AND, most punishing of all, the infamous MLR (Medical Loss Ratio) provision which dictated that for small group pools ( in some stated groups under 50 -Wisconsin- and in other states groups under 100-California) their maximum OPERATIONAL margin could only be 20% and on large group pools only 15%.

So, Obama Care not only told health insurance companies how to underwrite, what benefits were mandated, but where the pricing terms had to be-And oh, by the way, the rate ratio in fully insured plans had to be no more than 3 to 1 between single and family.  Then, Obama Care dictated to employers that they couldn’t have their employees contribute any more toward their plan than (currently) 9.62% of their W2.  Okay, I get that, the single rates go up and are dictated to me, but I can’t charge the employee anymore than 9.62% of their W2?  So, that means Obama Care made it very difficult to meet the Obama Care Affordability provision UNLESS the employer dug deeper into their pockets!  Hmmm!  I get it now-When Obama said he was “going to shift the wealth,” I’m beginning to understand.   From my employer pocket to the government pocket.

Boy! At first look, it looks like the shaft was really put to both the insurance carriers and the employers in order to feed ObamaCare.   Ah Ha! But then the world changed.  Insurance carriers forgot all of those myths that they had preached to the market place for years, and years, and years.   They forgot about all the propaganda they had fed to the brokerage and employer marketplace about the RISKS of  being self-funded.  Why?  They discovered FEW of the Obama Care underwriting restrictions applied to self-funded plans-AH HA! A new day hath cometh.   So, they created these unique creatures called Level Funded Premium contracts.  These LFP contracts are all self-funded.  The carriers rated them just like they had fully insured plans with maximum rates and guaranteed cost levels, but they are self-funded. And they could continue to underwrite just like they had before Obama Care.  Of course, what the carriers didn’t realize was that the door was opened-big time!  Now, TPA’s and reinsurance carriers got together and they too created LFP plans.  So, in essence, what happened to the marketplace?   It got expanded many times over. No longer were groups, small groups, mid sized groups, and even groups up to 200 lives restricted to fully insured plans and fully insured underwriting.    My goodness, we all thought we knew what the horses were, but now were’ looking at this thing that is 1/2 fully insured and 1/2 self-funded, it’s kind of a Zebra right?    And guess what, because it’s self-funded the employer-the guy paying for it- gets data-wow! The employer gets to see all the elements of the cost from fixed to claims fund-wow! The employer gets complete disclosure as to fixed fees and commissions and stop loss level, and all the elements as to how these plans work and are funded-wow!  AND, oh by the  way, if there’s a surplus or if I don’t spend as much as the claim fund says I have,; I get some or all of the money back!! Wow! What an amazing innovation. They had us all believing those old myths and propaganda, why did we (insurance carriers) do this?

Because, carriers and reinsurance companies realized that they could GO BACKWARDS before Obama Care and underwrite just like they used to do.  MLR doesn’t apply. Underwriting restrictions don’t apply! We can make money again and control the risk again! Oh, Happy Day!

But wouldn’t you know it.  The kingdom at the top has changed.  Now, everyone is realizing that Obama Care was a bust-we have fewer and fewer carriers who even want to do individual plans on the marketplace and the cost?  Oh my goodness, the cost (unless your subsidized because you don’t make any money, or you don’t work, or you’re finding a way around the system) is outrageous.   What now?  So, it looks like there’s going to be changes, repeals, restructuring, and on and on.

But the carriers have created these products out there now. Employers love them. Those who are forward thinking, non-legacy brokers love them-it’s a new tool in their arsenal.  So, they’re here to stay.  The problem is this question-do insurance carriers really like the Zebras they created anymore?  I wonder.

So, what has happened since these plans were introduced to the marketplace some 4 years or so ago? The underwriting has changed.  Carriers are realizing that in order to have these unique products in the marketplace they can’t underwrite them the same way they first did. One such carrier, the really big guy, is putting in mandatory 18%-50% rate increases but showing lower rates if the employer goes back to the old fully insured plans again.  The discovery as an insurance carrier? We don’t like giving all of our secrets away. Self-funded plans take a lot more internal work, monitoring, and real underwriting.  Also, we have to give employers data. We have to  abide by full disclosure and transparency that we didn’t have to do in the old fully insured plans.   So, when we look at the rate increases  on these LFP plans 4 years down the road is, fixed cost that used to be 30%-40% of the total plan cost, are now 60%-70% of the plan cost.  And claim funds that used to 60%-70% of the total premium are now 30%-40% of the premium.  Are there still reasonable LFP plans still out there-oh yes! Once the door was opened a lots of new identities came through.

Therein, the market is truly maturing after 4 years.   Employers now down to 10 employees on a plan can buy a LFP plan and they can even COMPARE it to a fully insured plan-My Goodness-They have choices!! What about that?   Groups 50+ are even exploring being partially self-funded, because they’ve really discovered that they can REDUCE their risk by doing so.  They’re looking at their renewals, getting the underwriting exhibit and seeing they’re being held responsible in their fully insured  renewals up to $50,000 per participant and a lot more-$50,000; $75,000; $100,000.  Then they’re finding out that they can partially self fund and buy a stop loss down to $20,000 or $25,000. Then guess what? They realize that even though the maximum cost might be a little more, self-funding is a great deal. Why?  They get to hold onto their own money. They lowered their overall risk, and so they only pay the claims when they occur, not before hand through ever increasing premium dollars.  They realize and being to understand that  the ratio’s prove to them, they’d be crazy to fully insure. Those groups that go to LFP plans are more likely to take the next step to self-funding than they are to go back to being fully insured.

So, you see, the world has changed since 2010.  The old myths and the old propaganda is dead and buried.   I’m in discussions with 4 markets who do LFP plans that aren’t in Wisconsin yet, but who want to be.  Why? Given the provider cost structures here they know they can bring their products in and make money.   You know, don’t you, that if you drive to the border-Kenosha, the costs for health care 15 miles south of there are 10% to 15% less?

It’s Wisconsin folks.  We no longer have Certificate of Need.  The building projects continue and continue-there’s more than $250,000,000 of projects going on right now -Waukesha, Kenosha, Sheboygan area, up in the Marshfield-Wausau area. So, who pays for this?  Oh Yeah, the systems who are building them right? It’s trickle down folks and in a big way.  You also know don’t you that of the 10 largest health systems in the country, we have three here in Wisconsin now.  By the way, just in case you think otherwise-bigger is not nessarily cheaper.  The bigger they are, the more they need, and the more creative they get in terms of getting what they need.    Crazy isn’t it?    When you have a third party payer, the famous phrase, “build it and they will come” means “build and the big money comes.”  Wisconsin is a very unique and strange health care marketplace.   While our population gets older, the hospital systems get bigger, and the cost goes higher.  Unfortunately for doctors, the systems are so big,  all the doc.s have been purchased and absorbed into the systems.  So, while doctor’s incomes aren’t increasing at the same rate as the hospital cost are increasing-it’s because the money goes to the system. The systems get bigger, so they can defend the onslaught of competition and in some cases take more risk.  You know what ACO means don’t you-it means I’m a big hospital system and I’m getting ready to take risk and compete with the insurance carriers.  I don’t trust them. They make too much money. And I want my piece.   I hear it all the time.

Well, please forgive the rant-but through self-funding of one kind or another, you can customize your plan. Get out from under Obama Care regs and mandates (some of them), and with access to data, really begin to practice risk management through integrated wellness, buying bundled payment networks, selecting and even making your own narrow network, implement on-site or near-site clinics-the door for you as an employer is open too.   It’s like walking from the car show room where all you see is the car, into the garage where all the tools are hanging on the wall and the mechanic is happy to explain to what’s under the hood and what’s beneath the body of the car.   You really get to gain control. My goodness, isn’t it time you get to take some control over what you’re spending?  Wow-what a new and innovative idea-huh?

So, thanks for taking the time to read my rant.  Just as the world in so many ways is changing due to alot of things like technology-internet-global climate change-block chain technology-bit coin- the world of how you buy and what you buy, as well as how you risk manage, employee benefits has changed as well.  The old world died a few years ago, so it’s time to quit thinking in the same terms as you did before.  Just because your broker may be stuck back there doesn’t mean you have to be-right?

I hope reading my rant was worth it-keep smiling -winters almost gone-and you can now take control-feel free to call me if you want- any time-for the grace of God go I-:) Greg