9.12.12LongIslandBusinessNews

http://libn.com

MagnaCare COO Tom Considine

Long Island Business News

Small firms self-insuringby Claude Solnik

Published: August 31st, 2012

Like Be the first of your friends to like this.

Evelyn Hill, a company that employs 250workers at concessions including EllisIsland and the Statue of Liberty, cut thecord in September with traditional healthinsurance after premiums reached $1million. Its employees, though, didn’tlose benefits or see rates rise.

Rather than buying a less-expensivepolicy from Aetna, Empire BlueCrossBlueShield or UnitedHealthcare, NewYork City-based Evelyn Hill went theself-insurance route, hiring a third-partyadministrator to manage its healthinsurance – but not buying a policy froman insurer.

The firm hired MagnaCare, a Manhattan-based firm with Long Island operations in Westbury,to craft and administer an insurance program on its behalf.

Also read

Q & A: Dr. Reuven Pasternak, CEO of Stony Brook University HospitalCancer therapy gets boost from venture capitalCancer therapy gets boost from venture capital

MagnaCare issues insurance cards, manages claims and collects monthly payments fromemployers to pay medical expenses. But Evelyn Hill is taking a gamble by paying the costsitself. If Evelyn Hill saves, it benefits; if claims go through the roof, Evelyn Hill’s costs rise.

Large organizations such as American Express, the University of California and Wal-MartStores Inc. have long self-insured through third-party administrators, and now they’re gettingcompany.

Facing rising rates, state mandates and taxes related to health care reform, small andmidsized firms are switching from traditional insurance to self-insurance.

“The benefits are the same,” said John Conway, Evelyn Hill’s vice president of humanresources. “No employee saw increases in co-pays or prescriptions. We use the same formula.And we’re saving money.”

Benefits experts said self-insurance is turning into a solution for more firms facingdouble-digit rate hikes.

“Midsized and smaller companies are looking at self-funding because of (its) reduced costs,”said Lou Basso, president of Farmingdale-based Alcott HR Group, a human resources

Long Island Business News > Print > Small firms self-insuring http://libn.com/wp-content/plugins/tdc-sociable-toolbar/wp-prin...

1 of 4 9/14/12 10:58 AM

organization. “You pay for claims that are made and not for anticipated claims.”

In traditional insurance, companies and individuals pay monthly premiums to insurers, whocover claims and build in a percentage profit.

In self-insurance, employee premiums are placed in a trust fund.

Self-insured employers pay claims as they come in, instead of paying fixed premiums tocarriers, so they’re holding onto money longer, improving cash flow.

Self-insured companies also get better access to claims information, so they know what theirexpenses are and can manage them.

“You get to see the data, so you can concentrate. If you find out three employees havediabetes, you can highlight things and even give extra benefits and care,” Basso said. “In atraditional plan, nobody gets statistics.”

Another benefit: Unlike traditional insurance, self-insurance programs aren’t regulated byindividual states, eliminating bureaucracy and restraints, and letting companies customizeprograms.

Even if self-funding can be attractive amid rising rates, critics argue companies are doing anend-run around health care regulation and increasing their own risk.

The National Association of Insurance Commissioners argues that smaller firms may useself-insurance to roll out anemic plans – and avoid regulation.

But self-insured companies say they’re cutting costs and finding ways to manage risks,benefiting employees and their bottom line.

“The market dynamics are moving in favor of self-insurance,” said Tom Considine, chiefoperating officer of MagnaCare, which administers policies for nearly 900,000 employees forfirms ranging from dozens to 100,000 workers. “There’s additional flexibility in goingself-insured.”

Companies can customize benefits, vesting periods and other aspects of plans.

And employers don’t have to pay the roughly 2 percent state taxes on insurance.

Some Affordable Care Act mandates and regulations for full insurance don’t extend toself-insured plans.

An insurance plan fee or tax, designed to raise nearly $90 billion through 2020, does notapply to self-insured companies.

“The act is driving up costs significantly in the traditional health care marketplace,” said MikeFerguson, chief operating officer for the Simpsonville, S.C.-based Self Insurance Institute ofAmerica, a trade association representing 800 employers and administrators. “By comparison,self-insurance looks more attractive. That’s the primary driver.”

Another big reason: States such as New York are forcing insurers to beef up offerings,including a new autism benefit expected to boost premiums by as much as 1 percent.

“It’s cost,” said Patrick O’Keefe, a vice president at Empire BlueCross BlueShield, whichadministers plans and also sells traditional insurance. “Self-funded groups have the ability tonot include state mandates. And New York is probably the most heavily mandated state.”

New York’s more than 30 mandates include covering prescription birth control, adoptedchildren and autism.


2 of 4 9/14/12 10:58 AM

Under New York’s community rating laws, firms with up to 50 employees must pay the samerate for everyone in that class.

That means a small firm with young, healthy employees has to pay the same rate as a firmwith an older, sicker workforce.

O’Keefe said self-insured plans also can offer wellness incentives insurers aren’t allowed tobuild into plans.

“New York has been restrictive around incentives programs around wellness,” he added. “Self-funded employers can build creative programs where employees who engage in wellnessprograms can receive direct incentives.”

Traditionally insured companies that roll out wellness programs may boost insurer margins,but aren’t likely to see their rates drop.

“If you have a good year, you don’t get a dime back,” Basso said. “If you can do well care andhelp employees get better health outcomes while you’re self-insured, there’s an excellentchance you’ll lay out less money.”

Next Page –Page Two

Like Be the first of your friends to like this.

Previous Page –Page One

Although self-insurance may sound strange to some, it originally caught on among largefirms.

The Kaiser Family Foundation estimates 70 million Americans receive health benefits throughself-funded plans, up from the 50 million the Employee Benefit Research Institute said werecovered in 2000.

“It’s saving money for us,” said Joseph F. Molloy, a vice president at the North Shore-LongIsland Jewish Health System, which self-insures more than 20,000 workers. “In a group thislarge, you spread the risk over a large population.”

North Shore-LIJ and many other hospital systems get additional benefits, since they can rollout incentives to get employees to use their services.

But even advocates say it doesn’t work well for all companies.

Firms with an older workforce, for example, could face soaring costs.

“The actuaries will tell you claims in that age group will be higher,” Basso said.

In a down economy, self-insurance can be risky, as a changing workforce leads to wild swingsin costs – and the need for cash on hand.

“Self-insurance isn’t for every company. You’ve taken on a lot of responsibility,” Fergusonsaid. “Despite what some observers say, it’s not like turning on and turning off a light switchfrom fully insured to self-

insured. It’s a big deal.”

Claims can vary widely at smaller firms that see savings one year and spikes in costs and


3 of 4 9/14/12 10:58 AM

claims the following year. The birth of premature baby could easily exceed a small group’sprojected expenses.

“It’s a little challenging,” said Dave Parker, senior vice president of Buffalo-based MeritainHealth.

To minimize risk, self-insured firms often buy “stop-loss” insurance, which kicks in afterindividual or aggregate claims reach a predetermined threshold, reducing companies’ risk,although this can cut savings down to 5 percent.

They also reduce exposure from big claims by banding together to buy stop-loss insurance,which lowers reinsurance costs.

Some states, supported by the National Association of Insurance Commissioners, are takingsteps to regulate the sector to avoid a flight from traditional insurance, particularly bycompanies with healthy employees or firms evading limits and requirements.

California, for instance, is considering forcing companies to pay the first $95,000 of claims oneach person, a threshold which many say would make self-insurance too risky for smallcompanies.

That level is far higher than the cut-off at which stop-loss insurance usually kicks in.

The biggest sign of a growing self-insurance industry may be insurers’ own efforts to boosttheir third-party administrator business among smaller firms.

Aetna last April paid $600 million to acquire Prodigy Health, Meritain Health’s parent. AndMagnaCare has grown from 160 to nearly 300 employees in two years.

“There’s a limit in terms of profit,” Parker said of insurers’ desire to grow their revenue asthird-party administrators. “But they continue to retain the membership and can grow thecompany, versus seeing membership go off the books.”

More breaking news

Gas prices, cars push US retail sales up 0.9 pct.UnitedHealth to replace Kraft in Dow 30Fuoco Group merges with Miami accounting firmEastern LI DWI strategy results in more arrestsMixed grades for new, healthy school lunch rulesRomney trying to shift back to economyLong Island’s rising starsM&T deal heralds wave of bank mergersDevelopers debate Source mall’s futureBanks, borrowers seek to bridge lending gap

Complete URL: http://libn.com/2012/08/31/self-insurance-viable-for-midsized-firms/


4 of 4 9/14/12 10:58 AM

9.12.12LongIslandBusinessNews

Documents

Transcript of 9.12.12LongIslandBusinessNews