Health Insurance and Self Funding

Let’s talk self funding of health insurance.  I find that to be a very commonly searched term in those finding their way to this blog.

And self-funding of health insurance is something more employers are considering today, given the rise in the costs of group health insurance.

Why Consider Self Funding Your Group Health Insurance Plan?

Self funding might be the only way that a smaller employer can really actually achieve some level of control over health costs.  Otherwise, the only way to “reduce costs” is to go for larger deductibles and copays, i.e. to reduce benefits.

And reducing benefits isn’t controlling health costs… it’s simply passing them on to employees.  But with self funding the employer can institute wellness programs — and then can participate in the reduced costs those wellness programs generate.

In addition, if an employer believes his group is healthier than the “average” group, he can lower his costs compared to fully insured plans.  Why?  Because in fully insured plans all groups pay the same (age-and-location-adjusted) rates, whether they’re sick or healthy.  In self funding you only pay for your own claims (except, of course, for the “stop loss” premiums, but more about that later).

General Overview of Self Funding Structure

There are three components to self-funding: claims, administration and stop loss.

Administration: This is the easiest part of self funding to understand.  It’s the cost of writing the policy (commissions, advertising, etc) and of actually running the plan (processing claims, paying claims, administering or paying to participate in PPO networks, etc.)  Even in small groups this cost is seldom more than 20% of the cost of a plan.

Stop Loss Insurance: This is the part of the plan that protects the employer against surprises.  There are two kinds of insurance:

• Specific Stop Loss Insurance. This is the most costly part of a plan.  It protects the employer against a “shock claim,” that is, a serious claims of exceedingly large proportions.  “Large proportions” depends on the size of the group.  A group of 30 employees can’t handle a claim much over, say, $20,000 or so.  Otherwise it will eat up the entire anticipated and budgeted losses for the year.  On the other hand a group of 100 employees could easily handle $50,000 – $75,000.
• Aggregate Stop Loss Insurance: This is insurance that protects the employer against over-utilization.  That is, it protects against all the small claims (those less than the point at which the specific stop loss policy begins paying) from exceeding some amount over the one-year contract period.  At some size a group becomes large enough so that Aggregate Stop Loss is a waste of money, as the “law of large numbers” suggests that there’s little chance of claims reaching the probable maximum.

The cost of stop loss (as a percentage of total health costs) diminishes as the group gets larger, simply because the employer can share more risk and pay for less insurance.  Even in a small group, stop loss costs typically don’t exceed about 40%.

Claims: That leaves the actual claims themselves.  If you stop to think for a moment, we now know that we can pretty accurately predict what the maximum cost of a self funded health plan will be.  It’s going to add up to:

1. Administrative costs
2. Plus stop loss insurance premiums
3. Plus maximum claims.

There really isn’t any way for costs to exceed that level (not completely true… but we’ll tackle that in the next of these articles.)  In fact, in about 80% or more of the cases, actual claims will be less than the projected maximum.

That’s the simple overview, but there’s lots more to self funding.  We’ll take up the details over the next few days as we continue with our series.

Belly Fat and the Self Funded Health Plan

I don’t usually read WebMD because it’s not about health insurance plans, self-funded or otherwise.  I do subscribe to it because I’m interested in health, but it’s kinda housewife-oriented instead of benefits-manager-CFO-oriented.  But an article on belly fat caught my eye.

Maybe it’s because the title, “Belly Fat: Which Foods Are the Worst?” stirred my sense of guilt over my larger-than-desired waistline, or maybe it’s because more and more of my clients are self-funding their group health insurance in one form or another and belly fat is costing them claims dollars.

Only with a self funded health plan coupled with an aggressive wellness program can you hope to actually reduce your health care costs (as opposed to simply finding new ways to push them off on your employees).  So I figured the belly fat article might be of interest to both me and to your employees.

And dang, it was pretty good.  I found that I had some misconceptions about belly fat, and I’m in the health business, sorta.  So I figured that you and your employees might benefit from the knowledge imparted by the WebMD piece.  So here’s a summary of what they told us:

• Belly fat is indeed more dangerous than that around butt and thighs.  Belly fat is associated with such serious health problems as heart disease, stroke, and type 2 diabetes.
• Do you figure that fatty foods are the worst source of belly fat?  Well, not necessarily.  Fatty foods will help you gain weight, so will too many carbs.  There is no single cause of belly fat.
• Genetics, diet, age, and lifestyle can all play a role in where the fat accumulates.  So if you change your dietary habits, read labels, reduce saturated fats, increase the amount of fruits and veggies you eat, and control and reduce your portions, you’ll help attack the problem.
• Alcohol worsens the problem via forcing the liver to burn alcohol instead of calories, plus alcohol changes your chemistry in a way that makes you more hungry.
• Trans fats from things like hydrogenated oils, cookies, chips and snack foods pack it on around the middle and actually move fat from other parts of the body to the waistline.
• Green tea, blueberries and soy all help reduce belly fat, particularly when combined with exercise.
• Fast foods kill you three ways.  1) the portions tend to be huge, 2) they’re calorically dense, and are addictive in nature.
• Diet soft drinks are on the razor’s edge so far as weight gain in general.  Yeah, they’re lower in calories, but other studies have shown that they lead to weight gain, probably because drinkers use their low calories as an excuse to eat more of other stuff.
• Although brown rice and other high fiber foods often taste like it’s made from the floor sweepings in the basement, in fact high fiber foods fill you up and are of lower caloric density than refined foods, and they can lead to belly fat loss.
• Men are more susceptible to belly fat than women, at least until hormonal changes that occur around age 40, after which the tendency for fat to settle around the stomach is about equal in the sexes.
• Belly fat is no harder to lose than any other fat; however, targeted exercises like situps and such don’t in any way affect the loss of fat in the region being exercised.
• Belly fat is implicated in osteoporosis, dementia and heart disease.  So unless you want to be a sore, forgetful invalid, pay attention to your diet and lose that belly fat.

What does this have to do with self funding?  Simple, overweight individuals are adding to your health care costs by increasing their risk from and likelihood of hearth disease, dementia, osteoporosis, diabetes and stroke.

In short, folks who have belly fat aren’t doing themselves any favors and they sure as heck aren’t doing your company any.  But it’s reversible — not easily, but reversible.  Get that wellness program kicked off and lower your health costs.

Stop Abuse of Sick Time

One out of every five employees in the Sheriff’s Office in Cook County Illinois takes FMLA leave on any given workday.  At the Cook County Jail, it’s one in four, as reported by the Chicago Tribune.

Give me a break!  FMLA (Family Medical Leave Act) absenteeism figures as high as these, one thing is abundantly clear: FMLA abuse is rampant in that workplace.  Fortunately for employers facing this situation, there are several tools available to turn the tide and take back your workplace.

Steps You Can Take to Fight FMLA Abuse

You can quickly put in place some measures that will reduce FMLA abuse and, in turn, potentially save you significant costs:

1. Require that employees complete a written leave request form for all absences
2. Prepare a list of questions you ask of every employee when they call in “sick.”
3. Enforce usual and customary call-in procedures.  For example, if the call-in policy requires the employee to call in one hour before their shift starts to report an absence, and the employee fails to do so, you can deny FMLA leave (and discipline the employee) absent an unusual circumstance.
4. Check in on the Employee.  That’s right, call them.  Catch one employee out goofing off and believe me, the word will spread.
5. Certify … and Recertify!  Clearly, one of the best tools employers can use to fight FMLA abuse is the medical certification form, i.e. a doctor’s statement.
6. Surveillance.  It’s your money… protect it.
7. Conduct a comprehensive audit of your FMLA policy, procedures and use of leave.

National Malpractice Reform Equals Lower Health Care Costs

One of the first bills of the legislative season, H.R. 5  (The “HEALTH Act” – Help Efficient, Accessible, Low-cost, Timely Healthcare of 2011) has been introduced (January 29).

I know that many attorneys will be up in arms at the thought of anything that restricts their ability to sue, but this appears to be a pretty reasonable law.  It’s based on the 1970′s law introduced in California by Jerry Brown.

While much of the country has seen an explosion of malpractice — to the point where it’s estimated that 10 cents of every dollar spend on medical care in the US is either frivolous lawsuits or  defensive medicine — California has seen BOTH a reduction in lawsuits and an improvement in patient safety.

The idea behind it is to limit the ability to overly reward lawyers and overly reward non-economic damages (“pain and suffering”) while assuring that the injured party’s medical costs are covered.

Here are some of the major provisions of the law:

First, it sets conditions for lawsuits arising from health care liability claims regarding health care goods or services or any medical product affecting interstate commerce. Then it:

• Sets a statute of limitations of three years after the date of manifestation of injury or one year after the claimant discovers the injury to file suit.
• Limits noneconomic damages to $250,000.
• Makes each party liable only for the amount of damages directly proportional to that party’s percentage of responsibility.
• Limits attorneys as follows -
  • Allows the court to restrict the payment of attorney contingency fees.
  • Limits the fees to a decreasing percentage based on the increasing value of the amount awarded.
• Allows other benefits paid to the injured party and the amount of those benefits to be introduced so that an appropriate — not over-the-top — benefit can be calculated. Furthermore, and importantly, it
  • Prohibits a provider of those benefits from recovering any amount from an award in a health care lawsuit involving injury or wrongful death.
• Authorizes the award of punitive damages only where:

1. it is proven by clear and convincing evidence that a person acted with malicious intent to injure the claimant or deliberately failed to avoid unnecessary injury the claimant was substantially certain to suffer; and
2. compensatory damages are awarded.

• Limits punitive damages to the greater of two times the amount of economic damages or $250,000.
• Denies punitive damages in the case of products approved, cleared, or licensed by the Food and Drug Administration (FDA), or otherwise considered in compliance with FDA standards.
• Provides for periodic payments of future damages.

As you can see, this is a pretty fair bill — it doesn’t hurt the injured party because it allows them to collect all the medical costs of rectifying a malpractice event, but it controls the runaway costs imposed by a convincing attorney who can manipulate a jury.

The only thing that I’d like to see that I feel would be better is a requirement that malpractice cases be tried in a special court and that the jury be made up of people with knowledge of medicine.  This would allow us to bypass insane awards issued by naive juries.

Voluntary Benefits: A Legal Risk for Your Company?

Does your company offer voluntary benefits, i.e. employee-pay-all benefits?  If not, you may not be competitive in the employment arena — an Aon survey found that 77% of companies, profit and nonprofit, offer at least one voluntary benefit.

Most of the time, voluntary benefits are a win-win arrangement for the employer.

• Employees love them,
• so morale is boosted,
• they’ve been shown to reduce turnover,
• improve the rate at which employees return to work after illnesses,
• improve productivity
• and they cost the employer next to nothing.

So What’s the Problem?

But a recent article suggests there can be hidden risks.  In some cases, employers are unwittingly dragged into court.  If a dissatisfied employee sues, the carrier that provides the coverage may argue that the plan is covered by ERISA and that the employee’s lawsuit should instead be filed against his or her company.

When the court agrees, the legal burden shifts — to you.  Some courts have ruled that a voluntary benefits may  be covered under ERISA, even if it wasn’t an employer’s intention to formally “sponsor” the plan.

When push comes to shove, the carrier writing the coverage will protect itself. Indeed, some attorneys warn that a voluntary plan insurer’s first move when sued by one of your workforce will be to attempt to get the legal burden shifted from itself to you.

How Do You Protect Yourself?

You need to be prepared.  Generally, two seemingly innocent things that can be turned against you in court -

• The written announcement to tell staff about the new voluntary benefit, and
• getting involved when there’s a dispute between an employee and the plan vendor.

Be cautious with announcements of the plan. When you offer a new voluntary benefit, the natural tendency is to try to get workforce pumped up to participate. And you should — why offer the benefit if you aren’t going to get some kudos for your efforts?

But you are liable to get in trouble if people  get the impression the firm endorses the plan. Here are some helpful practices to minimize that risk -

1. Don’t put the announcement on organizational letterhead
2. Put a disclaimer on the description
3. Either
   1. exclude your voluntary offerings from employees’ benefits manuals,
   2. list them separately,
   3. include a disclaimer in the benefits summary book, and
4. hold open enrollment at a different time than for ERISA plans (401(k), primary health plan, etc.).

Likewise, when the vendor offering the voluntary plan has competitors, you might want to remind personnel the vendor of the voluntary plan isn’t the only game in town. Some firms pass along lists of competing vendors.

Avoid involvement in disputes.  As happens with your ERISA plans, there’s a pretty good chance that your staff members will come to you when they have a problem with a voluntary plan.

That’s why it’s important to select a broker who is prepared to be the support mechanism your staff needs.  It allows you to say to the employee:

“Hey, this isn’t our company benefit.  It’s a separate benefit you bought on your own.  We just facilitate the premium collection via your paycheck.

“However, we carefully selected a broker to represent you in case of troubles.  Here is the number you can call to get help.”

That removes you, the employer, from the process and further underscores the separation of your firm from the employer/carrier contract.  It’s cheap and easy protection for you.

Click on the link to get our information on how voluntary benefits can reduce turnover, lower absenteeism and presenteeism costs.  When you get to the form, fill it out completely and put the words “vol benefits info” in the request form.

Wellness Growing In Workplace, but Not Being Well Measured

Wellness is growing across the employment spectrum, but not everyone is measuring its impact.

Nationally, employers spend an average of $220 per employee per year in 2010 — that’s up 35% from 2009, a huge growth for one year.  But on average only 37% of employers measure the effect of their programs, according to Buck Consultants as reported in Plan Sponsor magazine.

Among those who do measure the effectiveness of their programs, just under half of them report that they’ve been able to slow the growth of health increases.  The generally reported rate of reduction of cost is 2-5%.

The level of spending varies widely around that $220 annual figure, with 11% of respondents in the survey spending more than $500/employee/year.  The firms spending the most were spending as much as $3,000/ee/yr.  Obviously, those were significant programs.

A few other items from the survey showed:

• Worldwide 66% have a wellness strategy, up from 49% in 2007
• In North America 74% of respondents have a wellness program.  Had to be large employers taking the survey is my guess
• Technology is inserting itself, probably to drive down the cost of measurement and compliance.  Employers expect to see a six times increase in their use of technology over the next three years (e.g. the use of smart phones to support employee initiatives.

The Doctor Is In — The Workplace, That Is

Wellness is gaining traction among employers, and many  are getting aggressive by

• providing care services at the workplace, and
• some (obviously the larger ones) are building onsite clinics,

These programs have become the hub of a wide range of efforts to promote good health.

Employers aren’t being altruistic; rather, they recognize that good health

• reduces turnover,
• costly absenteeism,
• presenteeism,
• lowers medical costs, and
• adds to the bottom line.

These new work-place clinics are in some ways reincarnations of the occupational clinics that were a common fixture on plant grounds that were often plagued with work-site injuries.

The expanded model includes broader services like

• primary and specialty care,
• pharmacy service,
• blood draws,
• X-rays, and
• physical therapy.

Employers hope these clinics will produce behavioral lifestyle changes which factor into an employee’s every-day life and will help reduce the total cost of illness, both in the medical arena and in the employer ‘s profits.

The question is what can a smaller employer do?  Well, it’s not my job, but what would stop all the employers residing in an office building from pooling resources (in proportion to employment or some other common equalizer) to fund such a clinic in the building?

By promoting such a clinic employers in the building would gain from employees taking less time off for minor medical services, and they might also gain from improved productivity, reduced absenteeism and presenteeism.  Worth a shot, I think.

Business Group Focuses On Cancer

“As serious as cancer” is a phrase writers and speakers use to indicate that they’re really serious about something.  And with good reason.  It’s scary stuff to anyone who has it or has a loved one who has it — and it’s costly stuff to employers, too.

A big chunk of health care costs can be attributed to cancer.  Treatment is expensive, and the incidence of cancer is widespread, too:

• almost 1.5 million new cases were found in 2009
• more than 10 million Americans have a history of cancer
• it is the second-leading cause of long-term disability and
• the sixth-leading cause of short-term disability
• Research suggests that it results in at least $136 billion in lost productivity annually.

The good news — with a second edge to that blade — is that advances in treatment mean that many cancers are becoming chronic diseases… people are dying less frequently from cancer.

But the flip side is that, as Helen Darling, National Business Group on Health (NBGH)president and CEO, says in Employee Benefit News,  “They’re not terminal, but they’re not cured. “A person can be dealing with cancer for 20 years, and much of that time they’ll spend working.”

So the NBGH has teamed up with the National Comprehensive Cancer Network to develop a comprehensive set of resources for employers to address the entire spectrum of cancer-related benefits and workplace programs.

This “Employer’s Guide to Cancer Treatment and Prevention” will be based on NCCN’s clinical guidelines, which include expert judgment about and evidence-based recommendations for every aspect of cancer care.  The goal of the program is to assure that the cancer services delivered, from prevention through treatment to long-term follow-up, are deliver optimal outcomes from the standpoint of safety, effectiveness and efficiency.

Over the next three years, NBGH and NCCN intend to roll out the following resources as part of the “Comprehensive Cancer Strategy and Benefits for Employers” project:

• A quick-reference “Summary Document on Employee Sponsored Benefit Design, Pharmacy Benefits, and Contracting with Health Plans” that will help employers compare their current benefits to evidence-based cancer care.  They can then adjust benefits accordingly and assure access to care that is consistent with recommended NCCN guidelines.
• An “Employer Cancer Health Benefits Toolkit” covering general medical, pharmacy, and mental health benefits for cancer care.
• A companion set of “Benefit Manager Guides” for other strategic audiences, such as disability managers, focused on the productivity indicators including incidental absence, short- and long-term disability, family medical leave, workers’ compensation and EAPs.
• “Tools for Employees: Cancer Survivorship, Health Promotion and Wellness,” which will include fact sheets, information brochures and other literature on various aspects of cancer, treatment and care.

Beyond the improved treatment that this ought to provide to employees, it ought to also play a part in controlling the cost of health care.

Maternal Depression: What’s an Employer To Do?

A recent report discusses Maternal depression.  It’s a serious and common disorder that can

1. compromise a woman’s health,
2. reduce her quality of life and
3. reduce her functional status and
4. may negatively impact pregnancy outcomes.

Maternal depression is a common but serious disorder.   It is also quite treatable.  But while there are readily available effective treatments for maternal depression, because of

• a lack of screening,
• treatment barriers and
• stigma,

experts estimate that only 50% of women with maternal depression are properly diagnosed.

How Employers Can Help

Employers can play a part in helping to prevent maternal depression by offering

• medical,
• behavioral health and
• support services

to women at risk and by offering accessible treatment to women who have developed maternal depression.  The challenge is to do so without violating HIPAA or stigmatizing the specific employee.

Health plans can play a key role, too, although if a small employer has a fully insured plan, there’s little they can do to force the carrier to offer additional services.  With a partially self-funded plan, they can design such service into their offering.

But the Health Plan can help in preventing maternal depression by identifying those at highest risk, especially women who have suffered a prior episode of perinatal or postpartum depression, and managing their care.

Innovative yet simple interventions such as including information on maternal depression in prenatal education classes and maternity leave information or offering visiting nurse services during the postpartum period can be extremely helpful in identifying women with depression and getting them into treatment promptly.

The benefits of prevention and early treatment are significant. Women benefit by

1. regaining their functional status,
2. avoiding medical complications and
3. being better able to bond with their baby.

Infants and children benefit by

• gaining a full relationship with their mother,
• and improving their emotional, cognitive and behavioral development.

Employers benefit by

• reducing their medical costs, largely through the prevention of costly complications, and
• reducing lost work time and
• reducing disability costs associate with depressed employees.

Just How Expensive Is Massachusetts Health Insurance?

The Commonwealth Fund has put out a document on “Health Reform’s Potential” to reduce health costs.  It’s interesting — deeply flawed, but interesting.

Let me start by saying that the intended purpose of the report is the part that is deeply flawed… it’s a political treatise, written by a supporter of the Obamacare legislation that will, IMO, totally screw up health care in the US.

It talks about the cost savings under Obamacare (which it calls “reform”), but let’s look at Massachusetts, where Obamacare under another name has been the law of the state for going on four years.

Has it limited costs?  NO.  Costs are higher than every and have risen about twice as fast as originally projected.

It has achieved pretty much universal care, but that’s because A) we already were among the highest-percent-covered states, and B) the penalties under MA health reform for NOT having coverage far exceed the proposed penalties under Obamacare.

So Why Is It Interesting?

It’s interesting because it’s loaded with statistics about health care in the US.  Here are some of the really juicy things that pop out of this report:

1. Massachusetts has the most expensive care in the US — by A LOT.  Average US family cost = $13,027.  Average MA family cost = $14,723.  That’s a whopping 13% more expensive than the average.
2. From 2003 to 2009 average premium increase in the US was 34% for single employees and 41% for families.  In MA the increase was 51% for singles and 49% for families.  20-50% faster than the US average… so much for Obamacare controlling costs.
3. For small companies (under 50 employees), the average single/family premium in 2009 was $4,652/$12,041.  In MA it was $5,250 (12.9% higher than US) and $14,203 (18.0% higher than the US).
4. Large firms were $4,674/$13,210 in the US and $5,274/$14,871 in MA – so much for the oft-repeated argument that large firms have “buying power” that gives them an advantage over small firms.
5. MA plans are, by and large, “richer” than the average US plan.  In the US, 74% of firms have deductibles, and the average deductible is $917 single and $1,761 family.  In MA, only 43% of firms have a deductible, and the average deductible is $718/$1,508.  So we remain among the most paternalistic of states.
6. Growth in deductible size has been slower in MA than the US.  From 2003-2009 our single/family deductible has grown by 20%/41% respectively vs. 77%/63% nationally.
7. Smaller firms are taking the lead in the deductible category in MA.  50% of small firms vs 41% of large firms had deductibles in 2009 in MA.  (Compared to 74% and 74% nationally)

From the perspective of lauding the money saving potential of Obamacare (their intended purpose), the report is useful only for wrapping fish, dead fish.  But from the standpoint of understanding where MA stands in the pantheon of states on health insurance, it’s pretty useful.