As an innovative health strategist with years of experience in the field, I've noticed a significant and growing trend among employers, especially those leading small to medium-sized businesses, who are increasingly questioning the effectiveness of their fully insured healthcare plans (and their brokers ability to deliver better alternatives).
This shift in mindset is not just a passing fad; it's rooted in the real challenges and frustrations that come with managing rising healthcare costs, dealing with inflexible plans, and facing the lack of transparency that often accompanies these traditional insurance models.
Think of it like the 1980s classic, The Karate Kid. In the movie, Daniel LaRusso had to challenge the status quo of how he approached karate, moving away from conventional wisdom and learning new strategies from Mr. Miyagi that ultimately led him to victory. You know, wax on wax off...
Similarly, employers today are beginning to challenge the old ways of thinking about healthcare, recognizing that sticking with the same old fully insured plans may not be the best path forward. They’re starting to seek out alternative approaches that offer more control, better cost management, and greater flexibility—essentially, they’re looking for their own “Mr. Miyagi” in the healthcare world.
Let's dive into why insurance carriers are so eager to keep things as they are, often resisting these new approaches, and explore some of the compelling alternatives that are emerging in the market. These alternatives are not just buzzwords; they represent real opportunities for businesses to take control of their healthcare spending, tailor their plans to better meet the needs of their employees, and ultimately create a more sustainable and effective healthcare strategy.
The Carrier's Perspective: Preserving Profits
Health insurance carriers have long capitalized on the structure of fully insured plans, generating significant profits at the expense of employers and employees alike. In 2023, for instance, UnitedHealth Group, one of the largest health insurers in the world, reported an astounding $22.4 billion in net earnings.
Similarly, Anthem, now operating under the name Elevance Health, recorded a substantial $6.1 billion in profits. These eye-opening figures highlight a critical point: there is a strong financial motivation for major insurance carriers to maintain the status quo and keep employers locked into fully insured plans.
While these plans may seem convenient, offering predictability in monthly premiums, they often result in higher costs over time for employers. The profitability of these insurance giants reflects a system that, while beneficial to them, may not always serve the best interests of the businesses and employees who rely on these plans.
Understanding this dynamic is crucial for employers looking to make informed decisions about their healthcare strategies and seeking alternatives that could provide better value and control over healthcare costs.
Profitability of Fully Insured Plans and PBMs
Fully insured plans offer carriers multiple profit centers that have contributed to their impressive financial performance:
Profit Margins: Fully insured plans typically generate higher profit margins for carriers. For instance, UnitedHealthcare's profit margin was around 5.1% in Q4 2023, reflecting the profitability of their insured business segments.
Pharmacy Benefit Managers (PBMs): PBMs are a significant profit center, with revenues driven by negotiating drug prices, spread pricing, and rebates. The lack of transparency in these negotiations allows carriers to retain a substantial portion of the profits, contributing to their bottom line.
Premiums and Investment Income: Carriers benefit from fixed premiums in fully insured plans, which provide predictable revenue streams. Additionally, premiums collected in advance are invested, generating further income.
Administrative Costs: Fully insured plans often include higher fixed administrative fees, which are another source of profit for carriers. These fees cover plan management and claims processing, often at a significant markup.
Regulatory Compliance: Fully insured plans must comply with state regulations, which can limit flexibility but also ensure a steady flow of premium-based revenue as compliance costs are often passed onto employers.
Alternative Funding Strategies
For businesses looking to move away from fully insured plans, alternative funding strategies offer various advantages and disadvantages. Here’s a comparison of three popular options:
*Note: I have some cons listed here, but the truth is, for 97% of employers, the positives far outweigh the negatives.
Strategy | Pros | Cons |
Level-Funded Plans | - Predictable monthly payments - Opportunity for refunds if claims are low - Access to claims data | - Requires stop-loss insurance - Max funding the plan in first year when data isn't available. - Limited flexibility |
Captive Solutions | - Shared risk among employers - Greater control over plan design - Potential long-term savings | - Complex setup - First year can be a challenge to get comfortable with - Regulatory challenges |
Partially Self-Funded Plans | - Customizable plan design - Direct access to claims data - Potential cost savings | - Increased financial risk - Administrative burden - Requires stop-loss insurance |
Key Insights
Level-Funded Plans: Inspired by solutions like Crumdale, these plans provide a middle ground for businesses seeking to balance cost control with risk management. Level-funded plans offer predictable monthly payments similar to fully insured plans, but with the added benefit of potential savings if claims are lower than expected. This approach is particularly appealing for businesses looking to manage their healthcare costs more effectively without taking on the full financial risk of self-insurance.
Captive Solutions: Drawing on models like Everlong, captive solutions allow businesses to pool their resources with other companies to form their own insurance group. This strategy can lead to significant cost savings through economies of scale and collective bargaining power, while also reducing individual risk. However, the complexity of setting up and managing a captive, along with the higher initial costs, can be challenging for some organizations, making it a better fit for businesses with a long-term commitment to this approach.
Partially Self-Funded Plans: These plans offer a high degree of flexibility and the potential for considerable savings by allowing businesses to pay for actual claims rather than fixed premiums. However, this approach requires companies to actively manage financial risks, such as fluctuating claims costs, and to take on the administrative responsibilities that come with self-insurance. It is a viable option for businesses with the resources and expertise to handle these demands, offering both customization and control over their healthcare expenditures.
The Case for Change
These alternative models address many of the issues inherent in fully insured plans. And guess what? More employers are actively seeking solutions that give them greater control over their healthcare expenses while ensuring their employees receive robust coverage. Exploring alternative funding strategies can provide the flexibility and transparency they need to achieve these goals.
The shift towards alternative funding models is driven by a desire for more control, transparency, and potential cost savings. Employers are increasingly recognizing that fully insured plans, while convenient, may not be the most cost-effective option in the long run.
Conclusion
While carriers have a vested interest in maintaining fully insured plans due to the significant profits they generate, innovative health strategists recognize the potential benefits of alternative funding arrangements for small and medium-sized businesses.
By exploring options like level-funded, captive, and partially self-funded plans, employers can gain greater control, transparency, and potential cost savings in their healthcare offerings.
As the healthcare landscape continues to evolve, it's crucial for employers to partner with knowledgeable advisors who can guide them through these complex decisions and help them find the best solution for their unique needs. In a market where every dollar counts, exploring these alternatives could be the key to unlocking significant savings and improved outcomes for both employers and their employees.
Why wait. Contact me today to see what you might be missing.
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