Self-Insurance Survival: Creating a Health Plan in Unsuccessful Times
by Nancy L. Bolton, Employee Benefit News
Like many of our local government and corporate peers, Palm Beach County, Fla., made the switch to the self-funding of our group health plan in 2003, when health trends were hitting 30%, 40% and, in our case, 50% at renewal. After long deliberations and a tiny leap of faith, the county decided to keep those profit margins insurers were trying to capture through their outrageous renewal quotes.
Just a few months into the sixth year of self-funding, the county can report a very comfortable surplus that will see us through a year in which layoffs are certain and raises are tabled. It’s allowed for a small amount of stability in an unstable climate, and I can report with certainty that making the shift to self-funding was the right thing to do. But there have been lessons learned along the way.
A great supporting cast
First and foremost, partner with the best, and trust the guy with the crystal ball. A plan actuary is as key to the success of a self-funded plan as is the claims experience. These guys truly have a gift – or maybe just a really cool calculator – but they are essential.
Of course, it should be said that despite the quality of the plan actuary, the commitment of management – in our case, the Board of Commissioners – to fund the plan according to the actuary’s projections is perhaps more important than the projections themselves. I have known a few great risk and benefits managers that have been run out of town at sunset when their self-insured funds went belly up. Usually, the reason can be traced back to top management failing to fund the plan according to the actuary’s projections.
I never miss the chance to put my plan actuary in front of those top-level decision-makers and let him wow them with numbers, which will highlight his accuracy in years past and provide management with the faith his future projections will bear out.
Also, a savvy benefits consultant is worth his weight in gold when it comes to negotiations with the ASO provider. Palm Beach County enjoys the services of an international consulting firm that brings with it the bargaining power of hundreds of thousands of lives. We’re a large local employer, but we don’t carry the same negotiating strength of an international benefits consulting firm. The cost of the contract with this firm is returned year after year because of the clout it carries with the carriers.
Know your data (really well)
Secondly, know your data. I mean, really know your data. Spend weekends with your data, take it on vacation and never, ever miss a chance to review it hot off the press.
The reporting capabilities of your chosen ASO are as important as its claims-paying skills. Like a number of local government agencies, Palm Beach County still offers an HMO with capitation. If your self-funded plan does the same, insist on transparency. While reviewing data a few months into year three, we noticed a significant jump in the monthly capitation charges.
After much bickering with our ASO provider, we finally were able to peel away the onion layers to reveal the culprit – the ASO had been billing for disease management separately, after also quoting it in the administrative fee. This resulted in a refund to the county of nearly $1 million. There should be no such thing as hidden costs in a self-funded plan.
Follow the money
Last but not least, look for ways to bring cash back into the plan. A considerable amount of money can be recovered through prescription drug rebates. Most employers don’t even think to ask for them. Demand that your plan’s ASO provider share the wealth. During our most recent RFP, we asked candidates to tell us how much of the drug rebates they’d be willing to share with the county. A majority responded that they would return 100% of the rebates.
To date, the plan has recovered over $3 million in drug rebates since negotiating them back to the plan in 2005. We’ll certainly welcome the cash, but those annual recoveries also provide us with the knowledge that the plan needs to improve its generic push. However, it’s better to have those dollars back in the county coffers than in the pockets of our for-profit ASO.
Check your state laws, and if they allow for it, bring that cash back into your plan today and work on your generic push tomorrow.
In addition to the drug rebates, we asked the ASO to help us fund our wellness program. The ASO now provides an annual seed money account for the county to spend on its wellness program. These funds have provided for a number of wellness program perks, which simply wouldn’t have been possible if we’d had to find the funds on our own in the current budget climate. What better way to illustrate the ROI of a wellness program when there’s no initial risk in the investment?
Self-funding a group medical plan can be an excellent way to hedge the risk of medical inflation and carrier uncertainly in today’s economy. Partner with the pros, stay on top of the data and ask the ASO to share the wealth.
