“As long as you are fully insured, you are doing nothing more that perpetuating this farce.”
By Julie Wasserman
◾ Definition of Risk – A situation where there is the possibility of loss or unfavorable outcome
◾ Definition of Inevitable Loss – A situation where the outcome is virtually certain to have a material negative impact
Employers are typically averse to self-funding because of the perceived RISK. If you’re working with a savvy advisor, a self-funded plan will be modeled to virtually eliminate risk. However, if you continue under a Fully Insured plan, you’re looking at an INEVITABLE LOSS.
From a fiscal perspective you have two choices;
1. Extremely limited risk
2. Almost guaranteed loss
It seems to me there is an obvious choice here, but time and again I see experienced CHROs and CFOs opting for the guaranteed loss. Why? They certainly aren’t stupid or fiscally irresponsible, or at least they don’t know they are being fiscally irresponsible. The issue is that they don’t know what they don’t know. Here’s what they don’t know:
We have been operating under the guise that the Almighty Carriers have been protecting us from unreasonable costs with their network discounts. The fact is that those discounts are aren’t helping anyone but the carriers and the hospitals. How, you ask? (and you should be asking) The carriers are required to operate at an 80-85% Medical Loss Ratio (MLR), which means they must spend at least 80-85% (varies by group size) on claims. The larger that 80-85% is, the larger their 15% cut is. As for the hospitals? They are billing anywhere from 500 -700% of self-reported costs, so even with the glorious 50% discount most carriers are touting, they still take in 250 – 350% of actual costs for services.
As long as you are fully insured, you are doing nothing more that perpetuating this farce. If your advisor is corroborating the idea that Self-funding is too risky, it’s because they would prefer to hit the Easy Button, do less work and renew you on a contract increases their commissions as well.
TL;DR: Fully Insured Contracts fatten up the wallets of hospitals, carriers and advisors while your wallet goes up in flames.
All that said, Self-funding is the first necessary step towards paying fair and reasonable prices for healthcare. It doesn’t stop there, but it definitely has to start there. Tune in next time to learn how to really fight back to cut your spend.
