Self Funding: How Can We Make It More Effective?
Ensuring that self-funding/self-insurance is fit for purpose
Self-funding, or self-insurance, as it is often called, has been around for some time. It is a funding arrangement through which an employer assumes direct financial responsibility for the costs of an employee’s medical claims. Typically, when an employer sponsors self-funded plans, they would contract with a third party administrator (TPA) or insurer, who will provide administrative services for such a plan.
These services include cashless facilities with medical providers (for example, clinics and hospitals), adjudication of claims and 24/7 call centres to facilitate the claims. Historically, self-funding is something that many large organisations have done, including those from the banking and oil/gas sectors as well as government-linked companies (GLCs).
Self-insured firms spend a lot of money here, and the fact remains that even if they were to go down the insurance route, it would typically involve such astronomical premiums that risk transfer to the insurers would not be cost-effective. While it makes sense for large corporates to self-insure based on cost and risk, the primary challenge remains – the inability to manage and control the rising cost!
Most of the self- insured medical benefits plans were put in place decades ago. Therefore, what many are dealing with are legacy issues. These plans would have been designed at a time when costs were significantly lower. When organisations provided these benefits, most of these plans came with unlimited coverage. This means that whenever an employee went to the hospital or received outpatient care, the expenses were fully borne by the organisation, whatever the charges amounted to.
This is an increasingly daunting prospect to face as an employer, considering rapidly-rising medical costs. However, as this system has been around for such a long time, it is tough to make changes to it.
The situation is further compounded by an ageing employee population, the increasing prevalence of health problems, compounded by high medical cost inflation. Many organisations are struggling with the increasingly unmanageable costs of these programmes.
Ignoring the issue is not an option with the company’s bottom line under threat. Here are some of the ways many of our clients adopt to mitigate the problem.
Review your benefits plan
Start by taking a deep dive into your data. Look at who is driving the costs up. Consider questions such as, “Are the payouts helping?” and “Are the payouts actually supporting people to become more productive?” Benchmark against peers in the industry.
Move to cost containment by repurposing the benefits design
By repurposing the design of your benefits, ineffective elements can be replaced with something new which is of greater value to the employees. Doing this ensures the package remains relevant and useful – helping to attract and retain talent.
Ensure a greater degree of fit for purpose
‘Fit for purpose’ is a phrase that began in the field of consumer protection law. It refers to a product being in a condition suited to perform the function it was designed to carry out. The idea behind this concept is that if something is not fit for purpose, you could reject the product and demand a refund. Over time, this expression was adopted and used to assess a wider range of things beyond manufactured products.
Returning to the issue of self-funding and unlimited benefits, the issue, therefore, is whether it is still fit for purpose. Considering this was designed decades ago, it might be time to re-examine the package to check if it might still cater to the needs and wants of the present generation.
The way these packages were designed had appealed to previous generations in the workforce but today, there are other options that might be more attractive to employees. These include things like paid holiday packages, flexible hours and the opportunity to get into the gig economy. These are just some of the things that excite the younger generation of employees. Considering these, unlimited medical payments might be costly and ineffective in attracting talent.
In many ways, unlimited benefits do not necessarily promote greater productivity nor help with self-management. Competitive options need to match the expectations of your employees today. Therefore, time needs to be spent reviewing various offerings on a regular basis. Time also needs to be spent communicating the details of these offerings. If these things are not done, people may end up focusing almost exclusively on the pay package.
There are many benefits to the self-funding plan, not the least of which are cost savings, tailor-made plan designs, creating and maintaining a safe workplace as well as faster loss settlements. But how successful self-funding plans are will depend on what firms do to make it effective and fit for purpose.
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Headline image group of people in dress suits courtesy Marsh Insurance Brokers (Malaysia) Sdn Bhd
Marsh Insurance Brokers (Malaysia) Sdn Bhd will be hosting an Employee Health and Benefits (EHB) seminar in Kuala Lumpur on April 5, 2018. Themed “Future of Employee Health & Benefits – Strategies for Success”, this seminar focuses on key developments in the EHB landscape and their implications for employers in Malaysia. It will endeavour to share valuable insights on emerging trends in benefit design, benchmarks, risk financing strategies like captives and self-insurance and key components of an employee-centric benefits model. For more details or to register, please visit https://www.seeuthere.com/register/m2faf12c-1M46JR1YZGVQW or email [email protected].
Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer and Oliver Wyman. This article is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this article and shall have no liability to you or any other party arising out of this article or any matter contained herein.