As health care costs continue to rise,
one way to create savings to offset
the medical increases is through your dental and vision plans. By moving
their current dental and vision plans to a
self-funded program, employers can save
anywhere from 10 to 20 percent in health
care costs. Essentially, they are cutting
out the overhead and profit that a fully
insured carrier must include in their
rates.
Smart Business learned more from
Michael Pondrom, employee benefit specialist at Westland Insurance Brokers,
about what the self-funding option
entails.
Why are business owners taking advantage
of and implementing self-funded plans?
Employers are fed up with unjustified
increases from their traditional fully
insured programs that lack reporting
data to back them up. By implementing a
self-funded program, employers gain
control of their plan designs and reporting capabilities and also have the opportunity to lower costs dramatically. These
self-funded plans help offset high and rising medical costs and are easy to set up
and administer with the help of a broker.
How do self-funded vision and dental plans
work compared to a fully insured plan?
The self-funded vision plan is a reimbursement program. You may utilize any
licensed eye care provider. A typical
vision plan would reimburse an employee $50 for an exam and $100 for glasses
or contacts. This level of benefit matches
the plan designs offered by the fully
insured market but at a much lower cost.
A fully insured PPO dental plan can cost
between $30 and $40 a month for single
coverage. The self-funded dental plan
with the same benefit level runs nearly
half of that, between $15 and $20 (including the administration fees). Vision programs are approximately $6 to $10 per
employee per month. The monthly cost
for a self-funded vision plan for single
coverage is in the $2 to $3 dollar range.
How does a business owner operate a self-funded health plan?
The employer hires a third-party administrator to process claims and administer
the plan. The most cost-effective pricing
is generated by putting the dental and
vision benefit into one plan. That keeps
your admin costs to a minimum. Some
employers add a dental PPO network to
save in additional costs, but the discounts must outweigh the access fee
charged by the dental PPO. However,
most offer a simple traditional dental
plan with no network, offering the flexibility for employees to use any dentist —
including dentists in Mexico along the
border of San Diego. As a result, the self-funded product is a great solution for the
growing number of Americans who
access dental services in Mexico.
Are all business owners qualified to self-fund dental and vision plans?
Yes, however, it is not recommended for
companies with less than 50 employees.
What are the risks associated with self-funding?
The claim risks associated with self-funding have limits or maximums that the
employer can choose, putting a roof or
ceiling on their risk. If set up properly by
your broker, your plan’s maximum liability, especially on a dental and vision plan,
can be quite low, relatively speaking.
Do you believe that business owners will
start implementing self-funding to basic
medical coverage, as well?
Yes. As fully insured programs’ premiums continue to increase without reporting to back them up, many employers are
choosing to go self-funded. The benefits
of self-funding, with regard to control
and reporting, really appeal to employers
in today’s market. Plus, most employers
would rather see any excess profit that
would normally go to the fully insured
carrier instead go to their bottom line. In
other words, when self-funding programs run well, the employer benefits —
rather than the insurance company.
It is the classic example of, ‘How can
one expect to see different results by
doing the same thing?’ Often, when
employers shift away from fully insured
to a form of self-funding, they wonder
why they never tried it before. In most
circumstances, the positives of self-funding by far outweigh the risks, and when
communicated properly by a broker and
understood by the employer, it can dramatically improve the bottom line of a
company’s health care costs.
Will employees notice a change in their
coverage if the plan becomes self-funded?
No. As long as the program is set up
and communicated properly by the broker and employer, the changes can be
minimal, if non-existent.
MICHAEL PONDROM is an employee benefit specialist at Westland Insurance Brokers. Reach him at [email protected] or
(949) 553-9700 x3241.
