Why Do Employers Self-Insure?

What do health insurance and cooking have in common? If you think about it, employer-sponsored health insurance is like a recipe. For companies with no time or resources to create their own health plan, a fully-insured health plan would be the best option. It’s like using pre-made ingredients (store-bought pasta, a bottled marinara sauce, etc.); that is, the insurance company has ready-made plans employers can choose from. The employer pays a fixed premium to the insurance carrier and the carrier pays the healthcare claims.

For payers who want to have more flexibility with their health plans, self-insurance is the “recipe” of choice. With self-insurance, employers can create and manage their own insurance plans, customizing their coverage for their population. Essentially, it’s like making fresh pasta and tomato sauce from scratch. As many cooks know, this approach can come with risks or rewards. So why then, do companies decide to self-insure?

Access to employees’ health claims is a huge benefit and often one of the reasons why companies decide to self-insure. Claims data is important for two reasons:

• Customizing Health Plans: Because benefits managers can see what health and Rx claims have been submitted, they can spot trends and customize their benefits package to address those health issues. For example, if their population suffers from low back pain, then they can expand physical therapy coverage to treat those injuries.
• Budgeting and Forecasting: Claims data also provides insights into costs, so payers can use this to forecast spending and plan budgets. Employers can get a sense for what healthcare expenses they may face in the future, and also address wasteful spending in their benefits data.

With these benefits, some employers think it’s a no-brainer to self-insure. Companies still hesitant to jump into the frying pan usually name two reasons: time and risk.

The effort, stress and time spent on setting up and managing their own health plans may not be worth it for some employers. Most who choose to self-insure are large organizations with 1,000 employees or more, though some smaller companies are willing to spend the time to realize savings. Benefits pros face a mountain of information and data. They take on the cost of administering multiple plans, analyzing claims data, and working with the carrier to determine provider networks.

Because of these time concerns, many self-insured employers work with a third party administrator (TPA). TPAs are experts in the healthcare field and have the capability and knowledge to help businesses stay compliant and process claims.

Risk is also a concern. For smaller companies, a large increase in costs could put them out of business. They don’t necessarily have the revenue to deal with major claims or unpredictable costs. But companies that self-insure know how important access to data is in controlling cost, so the risk is worth it to them. They can access data from a number of different feeds to track trends, find wasted spending, and combat rising costs. Those purchasing a set plan through a carrier don’t have this capability.

As the old saying goes, “The greater the risk, the greater the reward.” The estimated 25% to 40% of private, U.S. employers who self-insure think that access to data is worth the risk and time it takes to administer these benefits.

Artemis helps make the lives of self-insured employers easier. Our Benefits Optimization Platform from Artemis turns claims data into easy-to-read stories, customized reports, and actionable information.