Self-Thought: Companies Ponder Bringing Insurance In-House

In 2009, upscale appliance-maker Viking Range Corp. was looking for ways to reduce health care costs without sacrificing its generous benefits plan. Located in the Mississippi Delta--a region known for the blues as well as some of the nation's worst health problems--Viking's employees struggled with chronic conditions such as diabetes and obesity.

With costs escalating dramatically in recent years, the company had no choice but to start charging employees $60 a month for health insurance premiums, says Beth Tackett, human resources director for Viking. Until January 2010, employees paid nothing. The company also increased deductibles by $100. But Viking discovered the greatest cost savings after it launched a wellness initiative based on its employees' medical histories.

Between 2009 and the end of 2010, Tackett says, the company saved nearly $1.2 million on annual medical and pharmaceutical claims. She credits the wellness program, which provides employees with access to a registered nurse to help them manage their medical care, free classes on healthy cooking at the Viking Cooking School, health fairs and lunchtime speakers.

Key to the success of the initiative, Tackett says, is that Viking is self-funded, meaning the company generally pays for the health care expenses of its employees out of its own pocket rather than relying on an insurance provider. Tackett says that being self-funded gives Viking the flexibility to tailor its health care plan in a way that allowed the business to cut costs even as it helped employees.

"When you're self-funded, you are able to make changes to your benefit plans so you can better meet the needs of your employees," she says. "You can adjust your deductibles, copays and out-of-pocket expenses in a way that's most beneficial to them. You can't really do that with a fully insured model."

In a fully insured plan, employers pay a fixed premium to an insurance carrier such as Blue Cross and Blue Shield that pays claims based on the company's benefits plan. Fully insured programs are standardized to meet state insurance regulations, so unlike self-funded plans, they cannot be modified, experts say.

But the most significant advantage that self-funded plans offer to employers is access to medical claims data, something insurance companies typically do not share with employers, says George Pantos, executive director of the Healthcare Performance Management Institute in Bethesda, Maryland. The institute is a not-for-profit launched in 2010 that promotes the use of business data and analytics to control health care costs.

That information enables employers to identify what populations and health conditions are driving up costs. That in turn allows them to develop targeted health and wellness programs.

"Claims data will tell you who is using the plan and for what and where the majority of costs are going," Pantos says. "It gives us insight as to who is using what drugs and who is driving up claims, for example." He adds, "Because employers with self-funded plans have access to this data, it is a tremendous advantage for them."

With access to this information, Viking hired WellNet Healthcare Group, a health care management company to analyze its historical medical claims data and categorize employees according to health risk--high, medium or low, a process known as predictive modeling.

While self-funding offers employers access to claims data and more flexibility in choosing benefits, it also puts them at some financial risk because they are responsible for paying medical claims. Because of this, small and medium-size employers have shied away from these plans, but that is changing, says Mike Ferguson, chief operating officer of the Self-Insurance Institute of America, an association of employers.

While there is a financial risk to the company, some of it can be minimized by purchasing a stop-loss insurance policy that protects against a catastrophic claim. Without this coverage an employer's funding reserves could be wiped out by a single medical complication. Employers can also purchase a policy that kicks in when medical expenses for an entire group exceed an established limit.

"There is some unpredictability with a self-funded plan," says Tracy Perez, a vice president and account executive at the Lockton Cos., a consulting firm based in Kansas City, Missouri. She advises companies considering self-funding to determine their risk tolerance.

"One month there will be a low number of claims and another month there will be a high number of claims," she says. "An employer has to be comfortable riding that wave."