In today’s rapidly evolving business landscape, companies are reevaluating their healthcare strategies more than ever. With rising costs and a growing need for flexibility, many businesses are turning away from traditional fully insured healthcare plans and exploring self-funded options.
Did you know that the National Health Expenditure (NHE) grew 4.1% to $4.5 trillion in 2022, or $13,493 per person, and accounted for 17.3% of Gross Domestic Product (GDP). Private healthcare insurance grew almost 6% in 2022 and accounted for almost 1.3 billion dollars making up about 29% of the national health expenditures. These massive increases in spending are making companies around the country look at alternatives to traditional healthcare plans.
Here’s a closer look at why this shift is occurring and what benefits self-funded plans can offer.
Skyrocketing Costs of Traditional Healthcare Plans
One of the most pressing concerns for employers is the escalating cost of healthcare. Traditional insurance premiums have seen consistent increases, often outpacing wage growth and inflation. Many businesses find themselves in a cycle of paying higher premiums for coverage that may not adequately meet their employees’ needs.
From 2020 to 2022 hospital and physicians’ services grew at an average rate of 3.4%, while spending on physicians and clinical services increased by 4% during the same period. According to The Commonwealth Fund, the “United States spends twice as much per person on health as per nations. Current research points to higher prices as a driving factor, but less is known about how the dollars associated with higher U.S. prices and spending are distributed.”
Self-funded plans can mitigate these costs, allowing businesses to pay only for the claims incurred rather than fixed premiums that include the insurer’s profit margins and administrative costs.
Need for Customizations in Healthcare Programs
Every workforce is unique, and one-size-fits-all healthcare plans often fall short. Traditional plans typically offer limited customization, forcing employers to choose from predefined options that may not align with their employees’ specific health needs.
Self-funded plans allow businesses to design benefits tailored to their workforce, whether that means incorporating wellness programs, mental health resources, or specific medical services that are in high demand among employees.
Greater Control and Healthcare Transparency
In a fully insured model, employers often lack insight into how their premiums are being spent. This opacity can lead to frustration, especially when employees utilize services that feel disconnected from the benefits they are paying for. CEO Carlos Migoya from Jackson Health Systems acknowledge that “They don’t want to know what it will cost the insurance company. They want to know what will it cost them.” Mr. Migoya stated in a conversation with the Miami Herald.
Self-funded plans provide greater transparency into healthcare spending, giving employers access to data and analytics that help them understand usage patterns, identify cost drivers, and make informed decisions about future healthcare strategies.
Employee Engagement in Healthcare Choices
Self-funded plans often encourage a more proactive approach to health and wellness. With direct access to data, employers can implement tailored health initiatives, incentivize preventive care, and foster a culture of wellness. This not only helps improve employee health but can also reduce overall healthcare costs in the long run.
What if self-funding enabled employees to have more flexibility in picking the providers that they want to see. What if self-funding options open opportunities for more support with mental health options or preventative care, nutrition, and exercise programs? Employees who feel supported in their health journey are likely to be more engaged and productive.
Flexibility in Healthcare Plan Design Through Self-Funding
The healthcare landscape is constantly changing, and businesses need the ability to adapt quickly. Self-funded plans provide the flexibility to adjust benefits, coverage, and provider networks in response to changing regulations, employee needs, or financial circumstances. This adaptability is a significant advantage over traditional plans, which often lock employers into rigid structures for extended periods.
For instance, the cost of a traditional healthcare plan may have increased, and deductibles may also increase in the same period. This makes out of pocket costs for healthcare increase too. In 2023 the growth in private healthcare spending was projected to accelerate to 11.1% following growth in 2022 of 5.9% according to the CMS. “This acceleration is due to the projected increased use driving faster per enrollee spending (8.0 percent) and increased enrollment in direct-purchase plans related to the temporary SEP and enhanced Marketplace subsidies.”
Potential for Profit and Savings on Healthcare Expenditures.
Self-funding can present a lucrative opportunity for businesses with stable, predictable healthcare costs. If claims are lower than anticipated, employers can retain the savings instead of funneling them into insurance premiums.
For instance, many employers are trying to limit the amount of healthcare insurance increases by taking on more of the burden of coverage. According to a recent article on USA Today:
“As the average cost of family health insurance has surged 24% since 2019, paycheck deductions for workers increased just 5% over the same period. Employers are absorbing most of these expenses. For the average family plan that cost $25,572 this year, companies shelled out $19,276 while workers contributed $6,296 through payroll deductions, the survey found.”
By looking at non-traditional options, businesses are looking for a way to further cut the costs of offering healthcare plans that may not fully be used by employees. Businesses simply cannot continue to absorb the increases in coverage.
Reduced Administrative Burden on Employers
While managing a self-funded plan may initially seem daunting, many employers find that the reduction in regulatory burdens compared to fully insured plans can simplify compliance efforts. Additionally, many organizations partner with third-party administrators (TPAs) to handle claims processing and administrative tasks, allowing businesses to focus on their core operations.
Many see centralizing administrative processes like central claims management. They believe that doing this is a way to improve transparency and reducing redundancy that can lead to more billing errors. According to the JAMA Network “simplifying administration could save the U.S. healthcare system an estimated $265 billion annually,”(2021 numbers.)
What Does the Future Hold for Health Expenditures?
As you may have guessed, the National Health Expenditure projections for the next decade are expected to grow 5.6%. That outpaces the average GDP growth rate of 4.3%. The result is an increase in the total health spending care of the GDP from 17.3% in 2022 to around 19.7% projected by 2032. Health spending is projected to keep climbing.
Small to medium sized businesses are looking for more options to offer healthcare to employees. They want to pay for the services employees are using, not pay for premiums and plans that employees are not accessing, but employers are subsidizing through their contributions. That is where self-funded healthcare plans are taking hold. Adaptation is not only imperative for small business survival, but it will also help them thrive in a new era of employee benefit options.
How Can AUI Help You Decide if Self-Funded Plans Are Right for Your Small Business?
Today, the complexities of healthcare costs are making small businesses re-evaluate if self-funded healthcare plans could be right for them. Self-funded plans are emerging as a compelling alternative to traditional healthcare plan options. The potential for cost savings, customization, greater control, and enhanced employee engagement are driving many companies to explore them.
By embracing self-funded solutions, businesses can better meet the healthcare challenges of today while fostering a healthier, more productive workforce for the future. The healthcare landscape is changing, and AUI is here to help you adapt. Contact us today to learn more.
