How COVID-19 is Paving the Way for Self-Funding

Not only has the coronavirus quickly become one of the biggest global health pandemics in history, but it has also brought with it sweeping changes to the way every industry looks and operates. The U.S. healthcare market is no different as it sits at the crux of this issue. The public health crisis has only brightened the spotlight on a historically broken market and accelerated the need for a change. As with any great market disruption, this is the pivotal moment for organizations to make decisions that could change their financial outlook for the next 5-10 years.

By now, most employers are aware that their healthcare costs have been suppressed over the last few months due to care being delayed or eliminated altogether. Major stop-loss carriers and third party administrators are quoting anywhere from a 15-30% reduction in claims since March. This sounds great in theory, but depending on your organization’s funding methodology, it could mean you are helping insurance companies pad their profit margins. The New York Times reported earlier this month that the biggest names in the health insurance industry are posting massive, near historic profit levels. Aetna/CVS second-quarter profits exceeded $3 billion, $1 billion more compared to this same time last year. Anthem Blue Cross Blue Shield is up $1.2 billion and UnitedHealth is up over $3.2 billion compared to the same 3 month period in 2019.

Organizations that are in a self-funded arrangement have already recognized their own commensurate savings from a cash flow perspective. Their costs are directly correlated to their own employee’s healthcare utilization. Conversely, employers pay insurance carriers the same amount of premium, based on enrollment, regardless of utilization in a fully insured arrangement. The major health insurance providers quickly realized that they would be sitting on huge profit margins so many have started offering premium credits as a sign of good faith. At the end of the year, carriers are still beholden to the ACA regulations around profitability and will have to deliver rebates back anyway. While it is a nice gesture at a time when companies are strapped for cash, it is also another way for insurance companies to help lower that year-end rebate amount so it doesn’t draw as much attention from employers.

By moving to a self-funded arrangement, you are changing the dynamic in favor of your own organization. Long gone are the days when an employer needs to have over 500 employees to “safely self-fund” their benefits. There are numerous programs available, whether through a consortium or captive, that make self-funding a reality for organizations as small as 50-75 employees. Along with the cash flow advantages in years where claims run better than expected, employers have endless flexibility with how they structure their plans and more transparency (i.e. data) than they know what to do with. All of these advantages equal to one thing – increased control. As the market starts to shift and respond to what we’ve seen over the last several months, having more insight and command of your healthcare plan puts employers in the driver’s seat – not the insurance companies.

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