DIY benefits: Exploring self-funding

Do-it-yourself is a proven strategy for saving money on everything from tax preparation to home improvement.

And as the cost of providing health insurance continues to climb, employers of all sizes are taking a closer look at self-insurance options.

“We’ve seen more employers at our door than ever. The lull in making any moves or having fewer health care claims from 2020 to 2022 when folks were isolated somehow resulted in higher premium increases than ever coming out of the carriers,” says Emma Fox, COO and partner at E Powered Benefits in Charlotte, North Carolina. “Unfortunately, some employers don’t have a choice any more. Even if they wanted to keep their brand logo ID card, they simply can’t sustain their businesses with 40%, 50% or even 60% increases year over year.”

The premium spike has been a wake-up call for many employers that it’s time to take a fresh look at benefits.

“We also see employers coming out of the pandemic wanting to be a lot more prepared for something like this to happen again,” she says. “Virtual and direct primary care have definitely seen an uptick, and certainly many more employers are adding mental health benefits.”

Josh Butler, president of Butler Benefits and Consulting in Amarillo, Texas, observes the same trend. “I am seeing more companies move toward self-funding as more employers and plan sponsors are learning that the unit cost of care is typically less than insuring it,” he says.

Although self-funding has long been a viable option among large employers, mid- and even small-sized companies are also becoming increasingly open to the concept.

“There’s always a lot of initial fear around switching, because many employers have been led to believe that self-funding is too risky or, even worse, that they are too small to self-fund—neither of which is true most of the time,” Fox says. “Our smallest client has 11 employees; it can absolutely be done, and it can be remarkably effective when done right.”

Robert Shestack, chairman and CEO of the Voluntary Benefits Association in Mount Laurel, New Jersey, has seen the market come full circle in the past few decades.

“When I initially started in this business, larger employers of 1,000-plus lives were typically partially self-insured with specific and aggregate stop loss in place,” he says. “In the mid- to late 1990s, smaller employers started to partially self-insure their medical plans, also with specific and aggregate stop loss. Then we had a shift in the marketplace and groups under 250 to 300 lives went fully insured. Stop-loss premiums were increasing significantly, and claims containment and cost controls were remaining the same, with no enhancements to technology or infrastructure.”

But this is no longer the case.

“Today, we are seeing a shift or reversal back to the 1990s, where employers under 100 lives are seeing the advantages of self-funding with stop-loss coverage, utilizing captives and significantly enhanced cost-containment programs,” Shestack says. “We are starting to see groups under 100 lives move to the self-funding concept. It is almost like a 360-degree turnaround back to 1993.”

The primary reason for self-insuring is no secret to anyone who follows premium trends. “The benefits of self-funding today are cost-saving measures to control health care costs, as well as employer flexibility on plan designs,” he says. “Self-funding will save money, but employers can’t be risk averse. They need to fund the claims account and cover stop-loss premiums as well as administrative fees such as TPA claims adjudication, network access fees, PBM fees, cost-containment and several other expenses.”

And as most people who have tackled a do-it-yourself project have learned, there is no substitute for professional expertise.

“If they have the right consultant or broker who truly understands the concept of self-funding, it is the platform that employers of size should take advantage of,” Shestack says. “They can save significant dollars in the first quarter of their plan. In the end, the true trade-off is understanding the concept and potential risks.”

Fox also emphasizes the adaptability of self-funding.

“It continues to be the most flexible payment mechanism we have and allows for maximum customization when administered by an independent TPA,” she says. “And it has rapidly evolved so advisors can be more and more creative when it comes to containing costs.”

Meanwhile, Butler focuses on what every employer is looking for: the highest quality benefits at the most affordable price.

“As rates are climbing, employers are once again looking for creative ways to deliver great benefits and lower costs,” he says. “Employers should always consider what they are willing to do to reduce organizational costs, which is the primary benefit of self-funding for most. There’s always a way to reduce health care costs. The real question is, ‘What are you willing to do to make it happen?’”

It’s important to note that employers with effective self-funding programs must leverage strategic partnerships.

“Self-funded employers typically have engaged and integrated partners such as third-party administrators, cost containment and pre-authorization organizations, as well as nurse and health care navigators to help improve care and to reduce their spend on health care claims,” Shestack says. “Historically, many employers developed their own exclusive provider organization and directed employees to use these providers. They negotiated pricing as a percentage of Medicare payments and offered enhanced benefits if employees utilized these providers.”

These partnerships are critical to clients of benefits advisors like Fox.

“There are many direct primary care clinics nowadays, and where there aren’t, we’re seeing virtual DPC solutions popping up,” Fox says. “One of the biggest changes I’ve seen in the self-funded market is the number of clinicians entering our industry, and I love it. How did we ever advise clients on health care without consulting a health care provider? Madness.”

Once again, brokers can position themselves as valuable information sources.

“Doctors and nurses have become a vital part of the solution in so many ways,” she says. “We must choose all of our partners carefully. They are not all one and the same, and a poor choice reflects poorly on the advisor later, as it should. Employers depend a lot on the TPA to manage most aspects of the plan, but the truth is, much of it is handled through careful medical management and, in our plans, through our fabulous DPC doctors.”

Butler Benefits helps make these partnerships simple for clients to use.

“Employers are now exploring ways to integrate all of these point solutions and ‘rebundle’ them together for a more-seamless integration,” Butler says. “Everything that can be standardized is beneficial. Nurse navigation is increasingly becoming a must-have solution within a custom self-funded plan, and I expect it to really expand.”

Advisors should also seek partners who share their commitment to quality and price.

“Get to the source of health care’s biggest problem: price,” Butler says. “Start direct conversations with local and regional health care providers and clinicians. There are so many in the clinical world who agree that something in health care needs to be done to curb costs without rationing quality care. Find those partners in your community, start conversations and build solutions.”

As the popularity of self-funding grows, forward-thinking advisors are well-positioned to grow their business by helping their clients succeed.

Related: How self-funding and primary care can save even more

“Be a student of the industry, no matter how experienced you are,” Fox says. “I learned a long time ago that collaborating was more important than competing, and we all get way more wins that way. We have a co-consultant program for that very reason. The more advisors we can teach (and learn from) in this market, the more employers we can all serve and the more weight we take off of businesses across America so they can focus on what matters most to them.

“Speak out. Tell the truth; especially the ugly truths. When employers get mad, they get brave.”