As health care costs continue to rise, more Connecticut small-to-mid size employers are showing interest in self-insuring their workforce as a way to better control costs, industry brokers and experts say.

Traditionally, self insurance has been reserved for larger companies, but double digit health care rate increases being felt by many Connecticut employers in recent years is spurring businesses with fewer than 250 workers to rethink their benefit plans.

Shouldering more risk in a bid to potentially reduce, or at least control, health care expenses is increasingly being seen as a viable alternative for many smaller companies.

And it’s spurring insurers to introduce new products to cater to the demand.

“We are having a lot more discussions with small employers about self-insured plans,” said Jeffrey S. Pichnarcik, the senior vice president and director of benefit operations for the Lockton Benefit Group in Farmington. ”It’s becoming a much more prevalent component of the plan offerings.”

Self-insured plans differ from fully insured plans because they shift the responsibility of paying for medical claims from the insurer to the employer.

Insurance carriers are hired to act as third-party administrators, processing the claims, issuing ID cards, handling customer questions and performing other tasks.

Pichnarcik said there is increased frustration from employers who have been shouldering large rate increases from traditional, fully insured plans in recent years, but have limited design control and little to no information about what is driving the costs.

Self-insured plans provide more flexibility because they are governed by the federal Employee Retirement Income Security Act, which means they are exempt from having to comply with state insurance mandates.

That can be particularly attractive to Connecticut employers because the state has among the highest number of mandated benefits in the country, a situation businesses have long blamed for driving up health care costs.

“Many employers view these state mandates as delivering marginal value to the benefit plan for the amount of additional cost that is incurred by their program,” Pichnarcik said.

In addition, since employers pay claims under a self-insured model, they collect claims data, which allows them to better understand cost drivers. It also gives them the opportunity to try to combat those cost factors.

“By shifting to a self-funded program, employers can begin to access and analyze claim utilization at a macro level and use this data to design effective and targeted wellness and disease management programs to support those employees who have the greatest need,” Pichnarcik said.

Other financial motivators for the shift to self-funding include the desire to reduce costs related to premium taxes, claim margins, and insurer risk charges, which can result in a 5 to 8 percent savings to the employer, Pichnarcik said.

Brad Morse, vice president of middle market sales and account management at Hartford health insurer Aetna, said smaller companies that make the switch to self-insurance tend to be financially stable and have progressive, forward-thinking management.

And they have to be willing to shoulder more risk since they will be responsible for paying out claims. Month-to-month fluctuations in claim expenses are something employers must be willing to deal with.

Jason Gutcheon, a partner at Professional Business Insurers in West Hartford, said only a small percentage of his small business clients are self-insured, but more are showing interest in moving in that direction. He said the model works best for firms with younger, healthy employees because they are less likely to experience higher healthcare utilization.

But self insured plans aren’t right for all businesses and can increase costs if a proper plan design isn’t implemented.

Meanwhile, insurers have been responding to the demand by unveiling new products or retooling existing offerings.

Aetna, for example, recently unveiled a new predictive funding product that makes self-insured plans available for companies with 100 employees or less.

Morse, of Aetna, said the product provides more risk protections and budget predictability for employers — two areas of top concern — by providing enhanced stop-loss protections.

Stop-loss insurance is a key component of self-insured plans, particularly for small employers, because it mitigates a company’s risk if there is an unexpectedly high amount claims. Essentially the stop-loss defines the maximum dollar amount that employers must pay for their claims for both individual employees and the overall company. After that threshold is reached, the insurer picks up the remaining tab.

Aetna’s new product sets the stop-loss cap at $30,000 per employee. The coverage also reimburses employers when claims exceed 110 percent of the budgeted annual claim volume. So, for example, if a company had $100,000 in expected annual claims, their liability for the year would not exceed $110,000.

“This gives employers more certainty when it comes to budgeting for health care costs,” Morse said.

Cigna, which is the market leader for self-insured plans to small- and middle-market employers, has even more aggressive stop-loss protections, with a cap as low as $10,000 for individuals.

Cigna’s plan also rewards companies whose claims experience comes in below anticipated costs.

Rob Phillips, Cigna’s sales manager in Connecticut, said about 25 percent of the companies in Cigna’s New England book of business are self-insured, but he expects that to grow in the coming years. He said East Coast states, particularly Connecticut, have lagged behind the rest of the country in adopting self-insured plans, but market conditions — particularly large rate increases on fully insured plans — are changing that.

“Smaller employers are looking for ways to have more financial flexibility,” Phillips said.

 

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