5 Reasons to Avoid Self Funding Your Health Plan

Bring balance to your decision making with an independent evaluation.
Bring balance to your decision making with an independent evaluation. www.DonWatza.com

Small Businesses are putting their businesses at serious risk

In talking with prospective employers one of the most popular topics that arise is self-funding. It being sold like it is the magic solution for employers. The fact is, it’s being sold because it’s an expedient way for carriers and group agents to “stay in the group market.” This means, by offering self funding as the preferred option to “save money” the agent can keep an employer in a “group” policy.

A group policy is much better for a group agent because they can maintain the employer relationship and write greater premium with one policy, the commission is greater too. It is much easier to sell the “popular” fad solution than to dig into the specific details of your plan. There is a large investment of time needed to do the best job comparing all the possible options.

Unfortunately, in the process to “win the sale” important facts about self-funding are left out. There are pitfalls to self funding no matter what your agent, consultant, carrier, TPA or administrator may say. Employers must consider the small print about self-funding before jumping in.

For larger employers, there are benefits to self-funding, but for a group of 25, 40 or 75 employees it is a bad idea. The proposed gain can easily be outweighed by an unexpected $1,000,000 unpaid claim.

Here’s a short list of reasons that should give a small business owner pause before self funding.

1 – Being an Insurance Company Isn’t On Your Bucket List

Being self funded means you move out from under the safety of having an insurance company paying claims. There’s the potential that you may have to pay claims when the TPA/administrator/insurer decides not to pay.

Not to mention, all the new rules and obligations.

2 – You Want to Buy Coverage, Not Be the Coverage

Here is a quote that most people would call the “small print.” You won’t find it in the typical sales material or presentation. You will find it when you’re asked to defend the non-payment in court.

“The participating employer agrees to be solely responsible for compliance with all laws, including the payment of any required benefits that are not covered as illustrated in the Summary Plan Description or the stop loss policy.”

Administrator Actual Policy Language

3 – You Become The Expert In Making This Decision

This carrier is being honest when they say, you should have experts telling you what to expect before you choose self-funding. This quote is a warning found in the sales material.

“While many employers can benefit from a self-funded plan, it may not be the right choice for every business. The biggest question a small group employer has to consider is if the additional risk will jeopardize their business.”

Administrator Advertising Materials

If you self-fund you will need a qualified person to evaluate your risk before making the decision. Your sales agent, consultant, insurer, CFO, HR person are not qualified to make this assessment. Will they pay the claim or will that come from you, the owners pocket?

This is a skill that is working for others every day why not ask for help after all, you hope people hire you for your expertise.

4 – You Didn’t Have Time to Read the Small Print

"If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim."
“If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim.”

The Big Print makes promises but the small print takes those promises away. When your self-funded administrator, TPA,insurer decides not to pay a claim, you’re on the hook. You as a business owner become the checkbook.

It’s true, in today’s sophisticated and complicated healthcare world it’s becoming more necessary to independently evaluate your options.

CAN YOU SAY DOUBLE TALK

This is just one example of the big print:

“Your maximum self-funding cost for the plan year is determined up front – and it’s guaranteed not to change, …

And here’s one example of the corresponding small print written into the policy of the carrier who published the “big print” quote above. There are many statements like this and you should know them all, or have someone who does.

  1. “We issued this coverage in reliance upon the accuracy and completeness of the information provided in the application form and during the enrollment process. If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim, rescind the coverage and/or modify the terms of the coverage or the premium amount.”

Actual policy language, page 1.

5 – You Didn’t Make a Benefit Plan to Tell Employees They Aren’t Covered

It happens, google the topic of “self-funded plans that couldn’t pay claims” and you will find 42 million website hits (graphic below).  The point is, there’s not shortage of problems for those who get in over their head.

Google search on self funded plans that couldn't pay claims.
Google search on self funded plans that couldn’t pay claims.

 

Do you Still Need Convincing?

Show me the options in front of you and I’ll show you the trouble.

Send any quote you have received and the comparisons I’ll give you my two cents for free.

This offer is available to owners only. Send them to my email without PHI, [email protected]

Source: Actual administrator and carrier language from marketing promotions and specimen policy.

All insurance is not Created Equal.

A Health Policy Buyers Dilemma

If you’ve had an insurance policy, and we all do, you may not have ever had a claim. The serious claim that is often large, like ten’s of thousands of dollars large is something many people never experience. This causes a purchase dilemma for most people. They must choose a policy without knowing if, at claim time, it will pay as hoped. They may not be entirely sure what to expect even after the sale. It’s popular for a buyer to accept a recommendation from a sales agent because they have to trust that person to match their needs.

Question One

Here’s the rub, many agents are wonderful, terrific people who want to take good care of their customer. There are some, as in any industry, who are going to recommend what’s in their best interest over their clients interest. Unfortunately, it isn’t quite so black and white. In our work with clients and the Decoder we frequently find opportunities for customers and make adjustments to the original recommendations. We’re making a living on finding these opportunities. We can’t say exactly why it is this way but it’s clear there are always opportunities to do better. In case you’re curious, these adjustments along the way pay for the Decoder within a month or two for most groups.

Question Two

There is a second question to be asked. If you’re not worried about your agent’s recommendations and are confident in them, the question is determining their level of confidence in understanding where the opportunities exist for your business. Healthcare is changing daily, we call it “shifting sands,” the speed of change literally keeps me up at night and this is what we do.

Chances are, what your agent knows, comes almost exclusively from insurance carriers and vendors. If you look objectively, you have to say that makes complete sense. After all, selling insurance to business is what they do for their lively hood. You shouldn’t expect something different. Plus, the speed of change makes sorting out all the carrier and vendor and marketplace options really difficult. Is your agent really up on all the options that might fit you, and can they explain those options in a coherent financial manner your CPA would understand?

Assess Two Qualities About Your Agent

I’m probably stating the obvious but it’s important to know where your allegiance lies. In the first case, the agent who you can trust must be screened by you. It’s very likely, you have confidence in your ability to screen out the better agents. You will have confidence then in choosing or keeping your agent.

Let’s assume in the first case that you’ve used a good process to hire an agent. What about the second case, where you are less prepared to assess how up to speed agent is with ACA, reform, plan regulations, policies and myriad of new options? Fact is, it’s highly unlikely that your abilities in this second part are as adequate.

Sales Process Does Not Work in a Buyers Favor

Insurance has the reputation it has because it’s earned it, and because what insurance provides almost seems like selling air. It is complicated and the sales process does not work in a buyers favor. What is common is that most people don’t experience serious claims that test their trust in a policy and agent, and as a result learn too late that they have a problem.

Insurance is complicated and healthcare is among the most complicated. You should almost expect problems if you’re not introducing an outsiders opinion about the decision you’re making for your policy. I’ve built BenStaff to do just that for you. I had to separate myself from the traditions of insurance and stepped out intentionally to offer an alternative. To protect and work with owners to solve the equation for the optimum outcome has been a real struggle and also opportunity. I have no part in traditional insurance and as a result can give you the benefit of insider information without making a living at selling you a product. I work with agents all the time and am happy to work with a customer’s agent. BenStaff does not participate in commissions, fees or overrides or other bonus’ traditionally part of the sales process.

Many businesses feel forced to reduce the decision to who they trust. While this can be good, it exposes your small and large business to the risk that who they choose to trust may not be the right person or not sufficiently knowledgable to tackle the new day.

Self funding down to 35 lives

In order to give more options to employers self funding has become popular. The question to ask is, do you want to be an insurance company? That’s what you do when you self fund.

Only a qualified expert, not a sales agent, should determine if you should self fund healthcare. This is a quote from a carrier promoting self funding down to 35 lives.

“also reduced the size of the groups for our Self/Shared Funding products down to 35 enrolled.  We made these changes in order to give you alternatives to your clients who are not able to keep their current plans.  I want to work with you and assist you as best I can to transition these groups to {his insurance company} and make it as easy and seamless as possible.”

Self funding is an awful idea for small employers, do you really want the liability of being an insurance company? Know before you go by calling in our team to evaluate all your options. The Decoder will help you see the downside, or upside, of self funding.