Partial Self Funding of Group Health Insurance – A Better Alternative to Cutting Benefits 9v.1888932-2946.ws

The average cost of employer-sponsored family health insurance premiums has more than doubled since the turn of the century (Kaiser Family Foundation, 2008). This spike in health care costs, coupled with current economic pressure, has forced employers to look at a wide spectrum of options for containing the cost of their employee health plans. Most of these options lack ingenuity and simply pass on more of the cost and risk to the employees in one fashion or another. Employees are left wondering how they will cover the additional out-of-pocket costs that have been transferred to them in recent years.

There is, however, a growing contingent of companies who have discovered that self-funded or partially self-funded plans are a better way to control costs and maintain coverage. A 2006 SHRM article reported that “about half of all employees with health coverage are in plans that are fully or partially funded by the sponsoring employers (Woodward, 2006). Yes, you read that right – about half – and that was three years ago!

There is a big difference between fully self-funded and partially self-funded plans. “The general underwriting rule is that it becomes an advantage to fully self-fund if an employer has 1000 employees or more.”(Wells, 2009). A partially self-funded plan, however, can afford a smaller organization many of the advantages of a fully self-funded plan with less risk and responsibility. Those advantages include 1) substantial savings in year one 2) relatively flat increases in subsequent years 3) flexibility with plan design 4) the ability to maintain a strong benefits package to bolster recruiting and retention efforts.

A partially self-funded plan design that has gained popularity since 2003 is the MERP (Medical Expense Reimbursement Plan). The MERP is simply one form of an HRA, based on the provisions of Sections 105 and 213 of the IRS Code which allow employers to reimburse employees for qualified medical expenses. The MERP, however, has several advantages over a traditional HRA including: 1) greater potential for savings 2) more flexibility with plan design 3) reimbursement of claims upon occurrence rather than up-front funding of accounts and 4) availability of claims data and utilization reports.

The typical savings in year one for companies who implemented a MERP plan runs at $1,000-$1,500 per insured employee per year. What would that mean for your organization – $30K, $50K, $100K? In most cases, the plan design can be constructed to closely mirror what was in place before so you get the savings without having to sacrifice the benefits that are so important to your current and future employees.

Partial self-funding is a proven strategy for putting premium dollars back in your pocket. The momentum behind partial self-funding will continue to build as health care costs soar. Any organization striving to be fiscally responsible and maintain strong employee relations should invest a little time to learn how a partially self-funded plan can be a better option than simply allowing your employees to absorb the additional costs each year.

References

1. News Release, September 24, 2008, Kaiser Family Foundation, http://www.kff.org/newsroom/ehbs092408.cfm

2. HR Magazine, Vol. 51, No. 8, August 2006, Nancy Hatch Woodward

3. HR Magazine, Vol. 54, No. 9, September 2009, Susan J. Wells

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