David Weiss

Friday, 25 February 2005 08:25

Pros and cons

Your colleagues tell you most Fortune 500 companies self-insure, and you've heard that self-insured companies have more control over their claims and expenses, making costs more predictable.

It's all true. It's also true that some companies switched to self-insured programs and increased their costs by $1 million. They lost carrier discounts, increased their risk of ending up with no coverage for run-out claims and increased their internal administration costs.

Self-insuring can be either a great way to reduce expenses or a disastrous path to higher costs and loss of employee satisfaction.

To self-insure

Self-insurance is one method of funding the cost of health care insurance. Self-insured companies do not purchase conventional insurance; instead, they pay for the claims directly, usually through the services of a third-party administrator (TPA), with stop-loss insurance in place to cover abnormal risks. The same kinds of plans, networks, benefits and limitations can be included in both fully-insured and self-insured plans.

Self-insuring can give an employer greater control over benefit designs and costs by avoiding most state mandates and state premium taxes, saving more than 7 percent in costs. That could mean a realized savings of hundreds of thousands -- if not millions -- of dollars in a single year.

Not to self-insure

Self-insuring shifts the risk, onus and potential administrative headaches from a carrier to the employer. Self-insured employers are responsible for selecting a suitably comprehensive health care network, analyzing provider discounts and selecting a reputable utilization review and case management company, as well as a TPA.

Self-insurance may be a poor choice if you have an older employee population that is at greater risk for unexpected, high-dollar claims. These claims can disrupt projected cash flow and affect your bottom line.

Such claims can't be anticipated, and can quickly drain financial reserves. An ideal organization for self-insuring should have more than 100 young, male employees on the plan.

Stop-loss insurance is essential when self-insuring because it protects against higher-than-expected catastrophic claims. However, carriers can "laser" individuals with higher risks, meaning an employer would have to pay a much higher claim before the stop-loss kicks in. Self-insured companies can also lose carrier discounts they previously enjoyed.

There are other hidden risks to self-insuring. A poorly chosen or executed self-insurance plan and network causes disruption among employees and resentment toward management and can affect employee recruitment and retention.

Help

If you decide that self-insurance is the right option for your company, it's beneficial to enlist a benefits broker. A savvy broker knows to evaluate key factors.

* Reserves. A company must have enough in reserve to cover run-out claims and other costs that might occur.

* Reinsurance. If the language of your existing reinsurance contract does not match your actual health benefits program, you may be paying for coverage you don't need and can never use. Your broker must be familiar with the intricacies of reinsurance as it relates to your specific requirements.

* TPAs. A TPA is, by definition, an administrator of payment claims. Are its network alliances in your best interest? Is it negotiating sharply to build the best network for you? Is it enough? An objective independent broker can help find a solid TPA that participates in networks that you and your employees need.

Self-insuring can be a viable and money-saving alternative for some businesses. It is possible to control insurance costs, protect your financial investment in your company and provide your employees with the benefits package they deserve.

The key to achieving maximum efficiencies with any insurance program lies is obtaining accurate and objective counsel.

Ron P. Weiss is senior vice president for Corporate Synergies Group Inc., a full-service employee benefits brokerage and consulting firm in the Philadelphia region. He has been a benefits consultant for more than 14 years, specializing in short- and long-term strategic planning for his clients. For more information on the benefits service brokers offer, go to www.corpsyn.com or call Corporate Synergies at (877) 426-7779.

Monday, 22 July 2002 09:49

Language lessons

In recent years, arbitration has become a booming business. From a business perspective, arbitration brings closure to a commercial or consumer dispute far more quickly than protracted litigation through the traditional court system. And associated costs are generally lower.

So it’s not surprising that many companies anxious to control and manage legal costs are writing pre-dispute arbitration clauses into their contracts. These essentially require all disputes arising under the contract to be resolved through a specific arbitration program.

But businesses that blithely copy clauses from form contracts should know they must be used thoroughly and with care. They run the risk of being voided by the courts on various grounds. Pre-dispute arbitration clauses can also breed ill will, as they are frequently misunderstood or flat-out missed by customers who are later peeved to learn that they have no choice as to where they can go to have their dispute heard.

Regulatory agencies and the courts start with the premise that pre-dispute arbitration clauses have a strong tendency to be unfair to most consumers. They argue that a company pondering such a clause can consider all of the legal implications of arbitration vs. other adjudication mechanisms, whereas it is likely that a customer at the point of purchase will not focus on the legal consequences of signing off on a contract containing such a clause.

Some states have laws that prohibit the use of pre-dispute arbitration clauses under various circumstances. Some ban them entirely, even in business-to-business contracts. Some ban them in consumer contracts, or certain kinds of consumer contacts.

Even in states like Ohio, where these clauses are enforceable, they may be voided on a case by case basis if they are considered unconscionable or oppressive or if it is otherwise established that all parties did not voluntarily and knowingly agree to arbitrate future disputes.

Unconscionability may be found if a contract is presented to a party who doesn’t have an opportunity to negotiate contract terms — who must accept the contract or risk being unable to obtain the desired product or service. Form (boilerplate) contracts presented to a customer on a “take it or leave it” basis are frequently considered unconscionable and therefore unenforceable.

These clauses have also been found unconscionable in cases in which they were in very small print and/or on the reverse side of the contract, or when they place unreasonable burdens on the customers, such as requiring the arbitration to be held in a state other than the consumer’s. If the clause is interpreted as discouraging people from making legitimate claims, it will likely be struck down.

The key to the successful inclusion of a pre-dispute arbitration clause is in its wording and presentation within the contract. The use of prominent and adequate disclosures relating to pre-dispute arbitration clauses can minimize and even eliminate some of the problems relating to a consumer’s lack of knowledge or bargaining power at oppressiveness.

These clauses should clearly and conspicuously:

  • Inform consumers that the clause affects important legal rights, and that they will not be able to go to court if there are any disputes arising out of the contract;

  • Identify the arbitration forum and provide a telephone number that can be used to obtain additional information about the forum;

  • Identify the types of disputes covered by the arbitration clause, which may not include claims for criminal or statutory violations or punitive damages;

  • Disclose the nature and amount of any fees consumers may have to pay in connection with the process;

  • Identify the standard that will be used as the basis for the arbitrator’s decision;

  • Provide for a separate signature line, appearing immediately below the arbitration clause, for the consumer to sign to acknowledge acceptance of the terms (or conspicuously place the clause above and on the same pages as the contract’s signature line); and

  • Contain a statement that the consumer will not be bound by the terms of the clause unless he or she signs on the signature line.

Above all, these clauses should never appear in small print or otherwise be buried in a contract.

David Weiss is president of the Greater Cleveland Better Business Bureau. For more information on arbitration clauses, contact the BBB at (216) 241-7678.