Self-Funded Healthcare Plans With Potential Savings on Stop-Loss Insurance

Companies often turn to self-funded health insurance plans to reduce costs. But larger-than-expected claims the employer might face could negate any savings employers anticipate over the cost of a fully insured plan.

Companies can purchase stop-loss insurance to pay excessive claims, but such coverage can limit the savings they can achieve through self-funding. Stop-loss insurance could be 10% of a company’s overall spend on health insurance, said Ken Olson, president of the employee benefits services division for The Horton Group, an insurance, employee benefits, and risk advisory firm.

“Stop-loss is an expensive component of your fixed cost when you’re building your own medical plan. But it can be the most profitable product for the insurance company,” Olson said. “We want to bring that control back to the employer through the ability to carve this expense out.”

Self-insured employers should seek bids from more insurers or request additional choices from their existing carriers to ensure the best option(s) available. At the end of the day, you will undoutedly want the most competitive rate and deal.

Nationwide, stop-loss insurance premiums increased to $18.6 billion in 2018 from $9.2 billion in 2013, Reinsurance News reported in an article on surging U.S. stop-loss premiums, citing statistics from AM Best. “While revenue from stop-loss business is relatively low compared with traditional commercial group health insurance coverage, it has been growing quickly in recent years as employers seek cost savings and more flexibility,” according to Reinsurance News.

Stop-loss insurance gained importance when the Affordable Care Act, which passed in 2014, removed limits on the health benefits that employers would be responsible for paying. Some employees also can accrue millions of dollars in claims now – even in a single year – as costs for specialty drugs and treatments rise.

“As medical and pharmaceutical innovations lead to higher catastrophic health insurance claims, employers with self-funded health plans need to review strategies for tackling risk,” according to a PlanSponsor article on how it’s time for self-funded health plan sponsors to revisit stop-loss insurance. Not only are claims of $1 million or $2 million not unusual, but some have hit $10 million or even $20 million, PlanSponsor reported.

Sixty-one percent of U.S. workers with employer-sponsored health insurance are in a self-funded plan, according to the Kaiser Family Foundation’s 2018 Employer Health Benefits Survey. “Self-funding is common among larger firms because they can spread the risk of costly claims over a large number of workers and dependents,” researchers wrote.

Sixty percent of those workers covered by self-funded employers are in a plan with stop-loss insurance. Stop-loss coverage may limit claims paid per employee (specific insurance), for the whole plan (aggregate insurance), or both.

An employer could buy specific insurance to cover any claims that exceed $100,000 in a year for an individual plan participant, for example. Similarly, if a company’s aggregate limit were $10 million for all claims filed by plan participants in a single year, then the aggregate insurance would pay any additional claims.

Employers that structure their contracts correctly may be able to get back a portion of any unused stop-loss insurance coverage that they paid for during their contract year. Then, the employer and insurance company can then participate in some of the wins. Employers should continue to identify tools and resources they can use to offset higher premium growth, year after year. As costs continue to increase, and possible political changes ensue with an election year upon us, employers and employees may begin to see accelerated market movement.

For more information on benefit offerings or on what you can do to control your health care costs, contact the Horton Group.