Here’s a rundown on the changes of keenest interest to insurance advisors...
By Cyril Tuohy
A small pharmaceutical company in Connecticut cuts its health care costs by $400,000 in four years. A labeling company in Ohio slashes its benefits costs by 29 percent over the same period. A third, a local utility in Tennessee, zaps claims costs by $500,000 in seven years.
As the Obama administration mulls whether to place restrictions on stop-loss insurance, a move that critics say will discourage self-insurance, three examples of how companies saved money through self-insurance point to alternatives to increasing health costs.
Successful self-insured programs are dependent on skilled advisors and brokers to help companies parse claims data and health care utilization rates.
Proponents of self-insurance acknowledge the strategy isn’t for everybody. When it works, however, employers and employees come out ahead, as witnesses testified last week before a panel of the House Education and Workforce Committee. The panel held hearings on administration proposals to regulate stop-loss insurance.
Take the case of Sheffield Pharmaceuticals, a family-owned manufacturer of over-the-counter creams, ointments and toothpaste based in New London, Conn. With 162 workers and $30 million in revenue, the company provides health insurance to 75 employees and their dependents.
Every year, Sheffield put its health insurance plan out to bid, and every year the increases came back in the low single-digit range.
The pain began in 2005, when premium increases started to average north of 10 percent. For several years the company absorbed the rate hikes either paring back the benefits or raising the employees’ share of the premiums.
But in 2008, Sheffield’s health insurer raised rates 25 percent, after Sheffield suffered a spike in health care usage among some of its employees, said Robert J. Melillo, national vice president of risk financing solutions with the insurance broker and consultant USI Insurance Solutions.
In 2009, premiums increased 39 percent, and that was the lowest offer Sheffield received that year from insurance carriers bidding on Sheffield’s business.
Since Sheffield’s employees were in relatively good health, another year of high health care utilization was unlikely. That would likely mean flat or lower premiums at the next renewal – or so the company thought.
When the answer came back as a no, the “decision to move to self-insurance became an easy one for the company,” Melillo said.
In a four-year period ending in May 2014, Sheffield estimates it will have saved $400,000 or 19 percent over the expected costs of insuring employees through a traditional, fully insured plan. The traditional plan over the four-year period would have cost Sheffield $3,115,281 compared with the $2,658,908 it estimates it will have paid under a self-insured program.
More than 1,000 miles to the south, Columbia Power and Water Systems (CPWS), a municipal utility supplying electricity, water and broadband services to more than 25,000 homes in and around Columbia, Tenn., converted to a self-insured structure following a 1993 decision by the local Board of Public Utilities, said Wes Kelley, executive director of CPWS.
The benefit plan covers 170 employees and retirees, as well as 204 dependents. “Enough money was saved in the first year of self-funding to establish a solid financial reserve that has continued to build to this day,” Kelley said.
Claims, which were $1.7 million in 2006, plunged to $1.2 million last year for a nearly identical number of covered lives. The utility has accumulated more than $1 million in reserve due to the lower claims payouts.
“Last year, our total funded costs were reduced by 1.8 percent, and this downward trend has been in place for several years,” Kelley said.
Deductibles have held at $200 per individual, and at $400 for a family. The drug co-pay has remained at $10, Kelley said. Employees don’t even have to contribute to the cost of health insurance through a payroll deduction, he said.
CPWS maintains a retention of $30,000, above which a stop-loss policy kicks in. The $30,000 retention has not changed since 2004, he said.
Self-funding has worked because of sound advice from knowledgeable consultants and affordable stop loss insurance, Kelley also said.
At SpearUSA, a manufacturer of labels for beverages, food and other packaged goods, health care expenses under its self-insured plan came to $10.42 million over a four-year period ending in 2013. That was a savings of nearly $4.5 million for the Mason, Ohio compared to its fully insured premium of $14.86 million over the period, according to data provided by Melillo.
Yet the number of covered lives – 302 in 2013 – declined by only 26 full-time equivalents compared with the 328 employees at the company in 2010.
In 2013, the average premium paid per employee per month would have come to $1,088.59 compared with $692.84 under the self-insured plan. “Since converting to a self-insured arrangement, SpearUSA has not increased employee contributions or reduced benefits,” said Melillo.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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