WHITEPAPERS & ARTICLES
A Cypress Series:
The Top 3 Advantages of Self-Funded Plans
Advantage #2 – Plan Savings
Make Way for Savings
In a fully insured health plan, the opportunities for savings just aren’t there. You pay a set amount each month no matter what claims amount to, and it’s pretty typical for those claims to be processed and paid without close review.
It’s a whole different story with self-funded plans. Employers/plan sponsors are paying actual costs based on the claims that come in each month instead of fixed rates where the dollars saved aren’t recouped. They partner with TPAs who follow a diligent claim review process, scrutinizing bills to identify any errors or overcharges and only agreeing to pay a total that’s fair. On top of that, employers have the ability to implement forward-thinking cost control solutions that focus on everything from telemedicine to medical/case management.
The outcome? Substantial plan savings that are the result of health-minded businesses, educated employees and reduced/negotiated claim costs.
Claim Costs: Fixed vs. Actual
Let’s take a closer look at how costs are structured by health plan. In the traditional plan, employers pay a set monthly amount to the carrier regardless of what the actual costs are. So say your plan has a month (or several) with fewer claims than usual and the total costs are significantly less. Do you see that extra money? Not in a traditional plan – but you DO in a self-funded plan. Why the difference? With self-funding, you are paying for health claims as they are accrued each month. That means you’re not paying for extra fees or commissions built into a fixed monthly premium … you’re paying actual claim costs as they come in, and any savings realized stay right with your plan.
The Cypress Solution
TPAs use different strategies to help clients obtain the most savings with their self-funded plans. As one example, Cypress Benefit Administrators follows a proven four-step process that combines core elements like risk management and data monitoring. It involves employers and employees throughout the various stages and starts with an emphasis on lowering claim costs from the get-go.
Step 1: Health Claim Reduction/Elimination
Step 2: Employee Information/Decision Assistance
Step 3. Cost Management
Step 4. Employer Data Management and Information/Decision Assistance
Health Claim Scrutiny
Why is reducing claim costs the first step? It’s because this is one of the biggest opportunities to achieve savings in any self-funded plan. Careful claim review is something TPAs emphasize as there can be a number of issues that affect the accuracy of any given claim and drive the total charges higher than they should be.
TPAs put several measures in place to take a comprehensive look at member claims and identify any problem areas, including everything from miscoding and duplicate charges to the services actually received and medical necessity. It’s far from a simple “process and pay” approach where claims automatically go through without any examination.
With claims specialists scrutinizing entries by procedure and completing line-by-line audits of hospital bills, mistakes don’t just slip through the cracks. This in-depth analysis often leads to significant savings since the amounts recovered through individual claims – varying from hundreds to thousands of dollars – add up so quickly.
Cost Control Solutions
Along with much tighter tactics for paying the appropriate amount by health claim, self-funded plans also integrate a variety of add-on solutions that are meant to maximize cost control. A sampling of these – customizable by employee group and plan – includes:
- Prescription cost management
- Medical tourism
- Diagnostic testing networks
- Medical/case management
- On-site/near-site medical clinics
- Organ transplant carve-out insurance
- Dialysis and chronic kidney disease (CKD) management
- Cancer risk management
With any self-funded plan administered through a TPA, the goal is to ensure the most value for every dollar spent. That’s where programs like prescription cost management come in to help educate employers and members. In this example, employers learn about options for prescription benefits design and discount programs. Plan participants are being taught about the medications they are prescribed in an effort to stop the trend toward high-cost specialty drugs, and increase the utilization of traditional/generic alternatives.
Another example of a program that’s gaining momentum with self-funding plans across the nation is on-site/near-site medicine. Employers are seeing how clinics at or near the workplace can save time and money and make it more convenient for employees to seek out the care they need because of improved access and proximity.
Annual Cost Savings
If you look at the overall data trends related to the expenses of employee health plans, a scary thing is happening. Health care costs continue to climb higher and higher. And in order to absorb those added costs each year, a lot of extra charges are being passed on to employees in the form of higher premium and deductible rates. But how long can this continue?
Many TPAs are challenging this trend through the self-funding approach. In Cypress’s case, the level of success has been pretty remarkable. These numbers tell the story:
- In 2015, health plan costs went up an average of 2.05% for Cypress clients and 5.69% nationally.
- Over the last five years, health plan costs have increased an average of 1.26% for Cypress clients and 6.2% nationally.
- The average PEPY (per employee per year) cost for Cypress clients was $9,372 in 2015 and $15,223.67 nationally.
Opening the Door to Savings
Simply put, self-funded plans are structured in a way that encourages savings. They eliminate the set, often-inflated rate a fully insured plan utilizes, opting for a “pay what you incur” method instead. These plans put more emphasis on careful claims review and often see significant savings because of it. They also incorporate add-on cost-control solutions for things like prescription costs and diagnostic imaging that have proven to be quite effective.
For more information on other top advantages of self-funding, read our full whitepaper on The Top 3 Advantages of Self-Funded Plans.