The Fallacy of Bidding Out Self-Funded Health Plans To Save Money

Many political subdivisions within Texas self-fund their group medical plans. In fact, most choose this financing method over purchasing fully-insured cover from a carrier. The choice seems obvious: self-funded group medical plans save money.

Or do they?

With the need to bid out their health insurance plans, cities, counties and school districts bid out everything except the component that drives 100% of their risk. They bid out third party adminstration services, PPO access, Rx administration and stop loss insurance. All these services account for as little as 10% of the Plan’s total cost.

What about the other 90% of Plan costs? Why don’t political subdivisions bid out that too?

Because they are ignorant, or just naive. Or, they trust their advisors who are ignorant or naive.

Political subdivisions should bid out provider costs too. They should invite interested hospitals and doctors to bid for the Plan’s substantial assets. Providers will compete for business, as has been proven by such groups as Bill Miller Bar B Q (Bill Miller Forbes), Tyler Independent School District, Blue Bell Creameries, San Patricio County, Texas Med Clinic, and many more progressive employers whom we have had the pleasure of working with in the past three years.

The problem is that political subdivisions have never bid out the dominant risk factor of their plan and instead¬†have historically ¬†“gifted” public funds through intermediaries who have negotiated secretive contracts with health care providers. See Health Care Strategies for Texas Political Subdivisions.

This is upside down.