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The Producer’s Guide to Group Health Insurance

Answering All Your Questions About Group Health Plans

Navigating the process of selecting an employer-provided health insurance plan for your clients can be a challenge, even for a seasoned insurance broker. That’s why it is essential that you (and your clients) are equipped with all the information necessary to select an insurance option that best suits their needs.

This guide is designed to help you and your clients select and build an optimal, cost effective group health insurance plan. Learn how small and midsize businesses can avoid the expenses and unknowns involved with the traditional fully insured group health plan model. Find out which group health plans deliver creative solutions that lower employer and employee costs with benefits customized to the employee population's needs.

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What Are Group Health Plans?

Instead of each employee purchasing an individual insurance plan directly from an insurance carrier or through a state- or federally-operated insurance exchange, the employer sponsors the group health plan. The employer-sponsored group health plan is offered as an employee benefit to cover all employees and dependents associated with their company. The benefit to these plans is derived from a majority of the employer population electing benefits (i.e. >50%), which results in purchasing power cost reductions and a broader selection of carriers and benefits than are typically available in the individual marketplace.

Beyond choosing the group plan itself, small and middle-market employers now have another alternative to consider – deciding between fully-insured and self-insured plans. Here are some basic differences between fully-insured and self-insured plans.


Fully-Insured Plans

An insurance carrier provides the health plan and pays any healthcare claims on behalf of employees and dependents. The company prepays a fixed monthly premium to the carrier (usually by tier: single; employee + spouse; employee + child; family). Employees may make monthly pre-tax payroll contributions towards the premiums, in addition to any co-insurance, deductibles and/or copayments.

Self-Insured Plans

Self-insured essentially means that business owners pay for each employee claim out of pocket, as they occur, as opposed to paying monthly premiums to an insurance carrier. Claims are paid with cash sourced from employee payroll deductions and employer matching as usual; however, these funds are usually held in a dedicated claims reserve account, which enables businesses to not only save on state premium taxes (3 to 5% of premium depending on the state), but to keep any funding reserves that are not paid out for medical claims, which often add up to 12% or more in annual savings, and would otherwise be pre-paid monthly to the fully-insured carrier.

Self-insured plans don’t differ from fully-insured plans in terms of the quality care that employees receive. However, choosing a health insurance plan that offers benefits tailored to the specific needs of employees, while simultaneously cutting out jurisdictional taxes and carrier profits, reduces costs for both employers and their employees.

Growing Segment

If you’re tempted to encourage your clients to continue the course with fully-insured plans simply because that seems like the safest approach, you might be surprised to find that self-insured group plans are gaining in popularity, thanks to the cost savings and flexibility they can offer. And for those reasons, they are particularly attractive to small and mid-size businesses.

In fact, according to the Employee Benefit Research Institute, “between 2013 and 2016, the percentages of small and mid-sized establishments offering at least one self insured plan both increased.” For small businesses, the percentage rose from 13.3% to 17.4%. This was a 31% increase overall, with the majority of increases occurring in 2016. In mid-size organizations, the percentage grew from 25.3% to 29.2%, a 15.4% increase over the course of the 2013 to 2016 time span.

These growth numbers demonstrate how self-funded group health insurance plans are becoming an increasingly appealing and viable option, particularly for businesses in the small to midsize range. But, they’re not weeding out traditional insurance plans altogether. Self-funded group health insurance plans still compete primarily with the BUCAs (BlueCross, United, Cigna, Aetna), the top fully-insured plan providers.

For some employers, it may seem easier to stick to traditional plans offered by these bigger, household names. But, as you explore the benefits of self-insured plans, it often becomes clear that a self-funded option is a more affordable and flexible path for small and middle-market business health insurance.

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What are the Benefits of a Group Health Plan?

For many small- to mid-sized business owners, the health insurance decision involves balancing concern about costs associated with the high premiums of traditional models and the risks associated with adopting a self-funded group health insurance plan.

However, as we’re about to explore, there are major advantages that come with offering a group health insurance plan to employees, regardless of company size.


Employee Productivity

First and foremost, the greatest benefit of offering a group healthcare plan is employee access to quality medical care. An insured workforce is a healthy and productive workforce. When employees know they’re not on the hook for major medical costs, they’re more likely to visit a healthcare provider or get a prescription when they’re sick, and take preventative health measures that might be otherwise cost-prohibitive. This means fewer sick days, happier employees and higher productivity for the employer.


Cost Savings

Employees aren’t the only ones to benefit financially from engaging in a group health plan, especially if the employer chooses a self-funded group plan. In that case, employers keep any funding reserves that are not paid out for medical claims, which often add up to 12% or more in annual savings. Additionally, self-funded plans are not subject to state health insurance premium taxes (usually 3% to 5% of the total premium charge).


Increase Talent Retention and Boost Employee Satisfaction

Offering employee health benefits is a powerful way for your clients to attract and retain top talent.

In fact, one survey shows that offering health insurance has a major impact on employee retention and the hiring process. More than half – 56% – of workers in the U.S. with employer-sponsored health benefits said that satisfaction with their health coverage is a key factor in whether or not they stay at their current job. Moreover, 46% of workers said health insurance was either the deciding factor or a positive influence on their current job choice.

Plus, retaining top talent has financial benefits, too. One study shows that the average cost to replace an employee is $15,000 per worker. These costs are incurred by lost productivity, time spent finding a new candidate, training the candidate for a new role, and paying new hires larger salaries. That’s a lot of money for a company to throw away, all because they failed to offer adequate benefits to their employees.

In addition, employee happiness is also improved by adequate health insurance offerings, and employee satisfaction has the power to transform a business. Employees who are happy in their roles are 20% more productive than those who are dissatisfied. When benefits are offered, employees feel valued and supported.

It’s essential to communicate to your clients that offering a group health plan to their employees not only benefits the individuals they employ, it benefits their company as a whole. With the right group insurance plan, companies can reduce costs, increase retention, and provide improved healthcare for their employees.

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What Is the Difference Between Traditional Group Plans and Self-Funded Group Plans?

While your clients might have a surface-level understanding of how fully-insured and self-insured plans differ, in order for them to  select the right option, it is vital that you provide them with an in-depth understanding of the intricacies of each option, how they vary, and the specific benefits.

When choosing a group health plan, there are two parties whose interests must be considered – the employer and the employees. As employers, your clients walk a fine line between choosing a group plan that doesn’t break the bank and offering a plan that provides satisfactory healthcare for their employees.

To get a better understanding of the differences between traditional and self-funded group health insurance packages, we will dissect the benefits and drawbacks of each from both the employer and employee perspectives.

Self-Funded Plans and the Employer

When evaluating self-funded group insurance plans vs. traditional fully insured plans, there are two crucial factors to consider from an employer standpoint: cost and risk.


Cost Reduction

Working with one of the BUCA insurance providers might seem like the more convenient, more traditional path. However, it’s important for your clients to keep in mind that the goal of the insurance companies is to turn a profit. That’s it. As such, part of every premium is allocated to the payment of health claims, and part is allocated to profit for the insurance company. Profit generated by a traditional insurer comes directly from the policyholders.

In contrast, a self-funded health plan is funded by a trust of group policy holders, whose primary interest is in covering healthcare costs. The funds contributed to the self-funded insurance pool are used only for healthcare expenses. Any excess - including ‘insurance company profits’ - remains in the claims reserve for the benefit of the health plan’s future claims.  

With self-funded health insurance plans, your clients eliminate the fully funded premiums paid to the insurer, reducing the average healthcare cost per employee as the employer keeps any excess funding reserves that are not paid out for medical claims, which often add up to 12% or more in annual savings. Additionally, self-funded plans are not subject to state health insurance premium taxes (usually 3% to 5% of the total premium not paid out for medical claims).

Essentially, employers offering traditional plans pay a set amount of money each year, whether or not their employees make claims large enough to match the amount of coverage they’ve chosen. With the self-insured model, employers are only paying for the claims that are made, and nothing more. Additionally, because self-insured plans are not beholden to many of the government regulations that insurance providers face, costs are lower and far easier for companies to manage.

In fact, the Self Insurance Education Foundation estimates that companies who adopt self-funded group health insurance plans save anywhere from 10% to 25% on their annual healthcare costs.


Cash Flow Control

A related ‘cost control’ benefit of a self-funded insurance plan is that the employer has improved cash-flow control. For small to midsize businesses, it’s especially important to control health insurance costs. If premiums unexpectedly increase from year to year with a traditional insurance provider, it can be difficult to plan how your cash will be allocated. With a self-funded insurance plan, you have greater transparency into where your funds are going, how they’re being used, and how much you will need for the future. Future costs are dictated by the self-funded plan’s experience, greatly reducing the unexpected annual rate increases driven by community-rated fully insured plans.  


Risk Assessment and Mitigation

Traditional, fully-insured health insurance is often identified as an attractive option for small to middle market employers because of the perception that it helps mitigate and manage the risk of healthcare expenses. No employer wants to be caught out having to pay for catastrophic claims. So companies pay a set premium to an insurer, and in turn, the insurer agrees to pay the employee’s eligible healthcare claims. All risk transfers to the insurer – no matter how many - OR FEW - costs are incurred in eligible claims.

When it comes to self-funded health care, the employer does retain a portion of the risk of paying claims. However, the risk can be structured and managed in a way to cap the total costs of the plan so that they employer doesn’t exceed the amount they would have paid for a fully-insured plan - while keeping any non-incurred claims savings. This is in addition to the elimination of state-mandated taxes and the complexities of managing a health-plan across multiple jurisdictions. To minimize the claims risk, small and middle-market companies secure a medical stop-loss policy to cover excess claims so that the company can forecast and manage cash flow just as they would under a fully insured health plan. These medical stop-loss, or reinsurance, policies cover events such as catastrophic medical claims, or a high-frequency of total claims during the policy period, which exceed a predetermined amount or deductible. This reduces risk for the company and ensures there will always be enough resources to cover the cost of any claim.

Self-Funded Plans and the Employee

Generally, employees will see little change between self-funded group health plans and fully-funded plans. They still primarily interact with the healthcare professional and access nationally recognized healthcare PPO networks. In the background, instead of the provider submitting the claim to an insurance provider, they submit the claim to the health plan’s claim administrator, which is a completely transparent process to the health plan member.

While the process holds little change for the employee, they still reap benefits from being covered by a self-funded group health insurance plan. Because their employer experiences cost savings thanks to claims savings, plan design efficiency, and minimal regulation, including the elimination of jurisdictional taxes, the cost savings can be shared directly with the employees. While employees still make contributions towards health plan coverage, those contributions are going directly to their own care, instead of becoming profit for one of the BUCA providers.

Another benefit is the impact of customizable plans. According to one survey, 74% of employees report that the ability to customize benefits to meet their needs is a key factor when considering a new job, and 72% of employees say the ability to customize their benefits would increase job loyalty to their current employer.

With self-funded group health insurance plans, your clients face little restriction when it comes to crafting a plan. The company plan can easily be tailored to the needs of the employee base. With this in mind, the company (with the support of a third-party administrator, whose role we will discuss later) can create plan provisions to cover certain benefits and exclude others as they see fit. Less is sometimes more; thus, a plan which covers the services its employees will likely need and excludes the others will have much lower cost.

For information specific to plan design flexibility afforded to self-funded health-plans, refer to the Healthcare Policy Shakeup Blog.  

Self-funded plans deliver maximum benefits for employees at a minimum cost to the employer.

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What Types of Companies Are Currently Offering Group Health Plans to Their Employees?

Organizations of all sizes implement self-insured health plans as a way of limiting overhead and maintaining control over their group medical costs. More small and mid-size companies than you may realize have self-insured their group health plans for years. As healthcare costs have continued to rise over the last few decades, more and more companies are considering self-funded plans as a way to save on annual premiums. It is estimated that, as of 2015, 63 percent of overall employers were fully or partially self-insured, compared to 44 percent in 1999, according to Managed Care Magazine. (That number is higher for employers with more than 5,000 employees, 94 percent of whom were fully or partially self-insured.)

Thus, self-funded plans are an increasingly popular group health insurance alternative for small to midsize businesses. For the purposes of self-insuring, small businesses range from 51 to 99 employees, with sub-mid market businesses from 100 to 499 employees, and middle-market businesses from 500 to 5,000 or more employees. If you’re an insurance producer and the businesses you’re selling to fall into any of these categories, a self-funded small business insurance plan could be the best option for their needs.

There are no limits to the firmographic profile of companies that can benefit from self-insuring. Begin by considering the makeup of your client’s employee population. Does the employee population trend towards Millennials and young and healthy Gen Xers, who may be more focused on family planning, or Baby Boomers, more likely to need care for the types of chronic conditions that begin to crop up in one’s fifties and sixties? This analysis enables you to anticipate your client’s coverage needs and potential risks when deciding whether or not to self-insure, keeping in mind that with self-insured plans you are able to design the benefits that most effectively meet the unique needs of an employee population. Within this framework, there are a couple broad small to middle-market industry classifications that are ideal candidates for self-funded group insurance plans.

"Grey Collar" Companies

The first is “grey collar” companies, or those with a mix of both white collar and blue collar labor. These businesses typically have a blend of full-time and part-time employees. This makes it imperative that employers are able to offer a wide range of benefits to meet all employee needs, as many will be lower wage earners with smaller spend capabilities. Some common examples of these industries include:

  • Transportation
  • Retail
  • Hospitality (i.e., restaurants or hotels)
  • Supermarkets
  • Call centers
  • Telecommunications
  • Logistics
  • Manufacturing
  • Construction

White Collar Companies

White collar companies also benefit from choosing a self-funded group health plan. Many startups and small businesses fall into this category, making them an ideal fit for this type of insurance plan. Some industries that you may be good candidates for self-funded group insurance plans include:

  • Finance & Insurance
  • Real Estate
  • Advertising
  • Technology, Media & Marketing
  • Accountants & Attorneys
  • Medical Professionals

In addition to companies considering migration from traditional fully-insured to self-funded insurance health plans, existing self-insured employers may be interested in evaluating their current self-funded plan and adjusting it to meet their current needs.

It’s easy to see that there are a wide variety of companies eligible for self-funded group insurance plans. If your clients are considering this option, but worry that their company may not fit a specific mold, they should reconsider. Self-funded insurance is right for so many companies, potentially including your clients.

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Who Can be Covered by Group Health Plans?

Now that your clients have greater insight into the difference between traditional and self-funded group health plans, and which companies are a good fit for either option, it’s important to understand who can be covered on these plans.

First, let’s define what constitutes a group for health insurance. For traditional health plans, this can vary by state. Under federal law, insurance companies must provide group health plan options to all businesses, regardless of size. This means that even the smallest of businesses with only two employees can be eligible for a group health plan. And, in many states, even self-employed workers can secure a group plan. (Be sure to look up your own state to determine what the specific requirements are.) When it comes to self-funded insurance plans, however, the employer defines the group.

If an employer provides an insurance plan to one employee, they must provide it to all employees. Moreover, if an employer offers health care coverage to some part-time employees, or those who work less than 30 hours a week, insurance must be available for all part-time employees.

In most cases, the employee’s legal spouse and any dependents of an employee can be covered by a group health plan. How is a dependent defined? Typically, these are the employee’s children, who range in age from newborn to 26 years old. The employer can also choose to cover domestic partners. For dependents to receive coverage, the employee must be on the insurance plan, too.

Additionally, there are medical stop-loss carrier minimum participation requirements that apply to self-insured plans, which may be more restrictive than the state regulations. For purposes of this guide, minimum participation is 51 employees actively on the plan, with the exception of NY, where 101 employees must be actively on the self-funded plan.  

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Which Providers Offer Group Health Plans?

In short, you can find a wide variety of providers who offer group health plans, including fully insured carriers and alternative payers. When you choose a fully-funded health insurance plan, you are more likely to browse through one-size-fits-all options. So, with major health insurance companies, like BlueCross, United, Cigna, or Aetna, you will have limited customization capabilities that are available with self-funded plans.

To access the self-funded health-plan market, including all the aforementioned benefits, your clients will need to seek an experienced, qualified third-party administrator (TPA) to manage a customized self-insured group health plan, without needing to partner with a major carrier.

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What Are Third-Party Administrators, and How Can They Help with My Group Health Plan?

When it comes to managing a self-funded group health insurance plan, most companies would find the administrative process too burdensome to undertake themselves. Thus, if you are a small- to middle-market business health insurance broker, you will want to identify and recommend an experienced, seasoned third-party administrator to your clients to support their self-funded health plan.

These professional organizations manage the design, implementation and logistics of the plan while continually analyzing opportunities to reduce cost and risk. Instead of spending time trying to understand the intricacies of administrative healthcare tasks, your clients can hand these responsibilities over to trained professionals with the knowledge to manage their plan successfully, allowing the employers to focus their attention on running their businesses.

TPAs help your clients stay on top of changes in rates, update employee data and healthcare requirements, work with carriers to assess risk and ultimately provide greater cost savings overall. TPAs also help your clients analyze their own claims data, yielding greater insight into how to manage benefits and save more money, which, for most small and mid-sized organizations, is typically hidden from view within the fully insured carrier.

Three responsibilities commonly managed by third-party administrators are:

  • Designing a Custom Plan. With the help of a trained TPA, companies can build a plan that is tailored to their employees’ needs, assessing the employee pool to identify potential risk and opportunity for savings. Additionally, self-insured plans simplify an employer’s ability to comply with regulations while offering the flexibility necessary to meet the unique needs of their particular workforce. According to the Brookings Institute, self-insured plans can be designed without many of the onerous fully-insured health plans restrictions.  
  • Eligibility and Enrollment. Any healthcare insurance onboarding process can be a hassle, both for the employer and the employee. Whether your client’s company has made a new hire or an employee has had a life event and needs to add a dependent, TPAs help make the onboarding process as smooth and informative as possible. TPAs are experts in providing the business processes, systems and information necessary for employers and employees to navigate enrollment, secure insurance ID cards, understand their benefits, and answer any questions that might come up along the way.
  • Claims Management.  A dedicated TPA can handle processing claims on behalf of the company, as well as provide member and employer support should there be any issues or questions along the way. Throughout the entire process, the TPA maintains transparency, so that employers can see exactly how their money is being spent and where waste can be eliminated.

Third-party administrators make having a self-funded group health insurance plan both convenient and efficient. Your clients can avoid the worry that their plan is being neglected or mismanaged and they won’t need to invest time or resources into managing the insurance plan on their own.

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How Can I Choose the Right TPA?

If your client is ready to take the path to self-funded group health plans, they will inevitably have questions about how to best select an appropriate third-party administrator to partner with for administration of their health plan management needs. Selecting the right TPA can have a significant impact on the success of their self-funded plan. Partnering with the wrong TPA could lead to higher costs and poor claim management outcomes.

As they evaluate their options, there are some key criteria to evaluate that can differentiate TPAs. Providing them with the following steps can assist them in evaluating and selecting an appropriate TPA partner for their group health-plan management needs.

1. Evaluate the company’s needs. To begin, start with an internal evaluation. The client  should define a list of their group plan management needs and goals, outlining details including any health concerns that may be specific to their company. They should also be prepared to disclose any future plans for growth, like an impending merger, etc. Your client needs to choose a TPA that will be the right fit now and moving forward, so that they don’t have to make a switch in the future.
2. Ensure the TPA is flexible. One of the greatest benefits of choosing a self-funded group health plan is your client’s ability to customize the plan to best meet their needs. As they’re narrowing their list of potential TPAs, they should ask about the TPA’s flexibility when it comes to plan customization, and for recommendations the TPA has based on an initial evaluation.
3. Ask about the claims process. When your client has a list of TPAs they are evaluating, they should connect with each one to learn how claims are processed. Ideally, they could engage in a dialogue with the TPA to fully understand the claim submission process for themselves.
4. Become acquainted with the service team. The TPA’s service team will have substantial interaction with your client and their employees. And, the service team will have a role not only in processing claims, but also in managing your client’s plan and making recommendations on how to minimize costs. Get to know them and get a feel for how your working relationship will be.
5. Assess the internal audit procedures and metrics evaluations. To successfully manage a self-funded group health program, your client should partner with a TPA who can back up their claims of efficiency with metrics. This proves that they’re experienced and can deliver positive results for your client. Internal audits are also essential. Inquire about the auditing process and what is generally revealed. The TPA should be using audits like these to identify weaknesses and close the gaps on inefficiency.

As your client is evaluating these options, remind them that not all TPAs offer the same level of service and attention to detail. Aside from choosing whether or not to engage with a fully funded insurance plan or a self-funded group health insurance plan, selecting a TPA to partner with is a decision that carries a lot of weight. Advise your client to evaluate their options carefully, and choose a TPA with the demonstrated experience that can meet the client’s identified needs.

Do you think a self-funded group insurance plan is the ideal option for some of your clients’ businesses? If so, there are a number of benefits they’ll reap when they adopt an insurance plan best suited for their needs. Self-funded plans offer flexibility, lower costs, and an overall improved experience, both for the employer and the employees.

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