On a weekly basis, I find myself engaged in conversations with benefits professionals and CFOs about self-funding. My colleagues know that there are very few large employer groups that I wouldn’t recommend a self-funded strategy for. Maybe I just like the challenge – but mostly, I think wise investors would bet against themselves before they would bet against the market.
When you hedge against your own plan management, you control the risk. How you communicate with employees, reimbursement rate negotiation, and plan design all fall under the purview of the employer, giving you more control over costs and reserves. Self-funded health plans are commonly implementing high deductible health plans (HDHPs) as one of these strategies, paired with health savings accounts (HSAs).
I’ll admit – when I first became eligible for a HDHP, the staggering out-of-pocket risks to my family were intimidating, despite recommending the plans to my clients for years. Truthfully, there is some commotion in the market suggesting that individuals on HDHPs are postponing care due to the high upfront cost, eventually costing plans more in catastrophic events.
This doesn’t mean that I will stop recommending HDHPs – it just means that we need to continue matching the right plans to each employer group. But, I believe there is a single factor that determines the success of a self-funded health plan above all else: employee communication. How an employer establishes personal accountability and consumerism amongst their workforce will far exceed any efforts to negotiate rates or increase deductibles.
So, how do you communicate the rewards of a HDHP? I think you start looking at health savings accounts as a self-funded strategy at the individual plan member level. In 2018, the annual HSA contribution limits are $3,450 for individuals and $6,900 for families (add an extra $1,000 for taxpayers over 55 years old). On average, plan members do not exceed these limits in out-of-pocket expenses in any given year.
Just like a self-funded health plan, HSAs allow individuals to fund their own account to reserve dollars for their own healthcare. These are tax advantaged, interest earning accounts that can be saved and invested for future medical expenses. Individuals need accurate planning tools to determine their family’s funding needs for the current plan year and into the future. Older participants can use HSA dollars as a retirement planning component, ensuring additional security paying Medicare premiums and out-of-pocket expenses.
Oftentimes when employers offer dual plan options, participants will pay more in premium for a traditional health plan they believe offers more security. In many cases, it would make more sense for these individuals to contribute the premium difference into their HSA and build a reserve to use for surprise expenses in the future. Combined with an employer contribution, this small investment can provide more financial flexibility.
Of the many political conversations in healthcare, HSA rules have consistently made their way into the dialogue. As the general public learns more about the tax-favored advantages, we need to go beyond the high deductible sticker shock and start educating employees about how they can have financial control over their own healthcare costs – how they can, in a sense, self-fund their own healthcare.