A Way for Employers to Save on Health Insurance...

There are many employers who give their employees group health insurance benefits, for no premium, a small premium, or a hefty premium.  The issue with these plans is that once the person has access to them, there is no incentive to not make maximum use of the benefits available.  So many who are covered by these plans use as much of their benefits as possible.  They take advantage of alternative therapies like accupuncture and chiropractic, when available.  They run to the doctor for every mild cold or flu-like symptom, pay their $10 or $20 co-payment, rather than just taking some aspirin (or Tylenol), drinking lots of fluids and getting some rest.

There is a way that employers can maintain a healthy employee population, provide these benefits and offer employees an incentive to use their healthcare benefits wisely rather than in a profligate manner.  It's called Partially Self-Funded Insurance.  Here's how it works.

The healthcare insurer collects a small premium for handling enrollment/disenrollment and claims processing.  They collect another, somewhat larger premium to insure against gigantic claims (let's say in this case more than $40,000 per individual employee, and as a group against a maximum amount of total claims paid out).  We're setting up this plan for a hypothetical employer that has 300 employees.  Under their old plan, they were paying roughly $1.5 million in premiums for their old plan.

Now we're going partially self-funded.  We won't pay more than $40,000 in claims for any one employee, and after paying out $300,000 for those two previously mentioned premiums, we have a $1.2 million budget and that's the maximum we can be forced to pay out in the plan year.  Anything over that will be paid by the insurer (that's why they collected the second premium).

The incentive comes from the fact that any part of that $1.2 million we don't spend on employee healthcare expenses remains with the company.  It's an expense we did not incur.  So, we offer the employees an incentive.  "Okay people, here's the deal.  We will split whatever is left of that $1.2 million at the end of the year with you.  If we spend only $900,000, that's a $300,000 savings, and you'll get half, or $500 each.  If we spend less, you get more."

Then we tell them we want them to take full advantage of the preventative benefits in the plan.  Get that annual physical.  Get that well-woman check.  Every dollar spent on preventing illness saves money in the long run.  We don't want them to just not go, we want them to be smart, informed consumers of healthcare benefits.

The hidden benefit of doing this?  It will drive down the amount of claims paid out, which means premiums will go up less, or possibly even decrease in the next year.