SEP 02 2008

Self Insuring Health Insurance

Miscellaneous

Someone asked, “My organization [a local government] with about 700 employees is currently fully insured for health insurance. Do we have self insurance options?”

I answered, “The dilemma for local governments is how to maintain a competitive health package.

Clearly, the place to start for refining an effective health plan is an analysis of employee and organizational health care needs. Such a systematic needs assessment identifies present statistics (and future trends) related to demographics (age profiles, family status, gender), turnover, service levels, changes in job tasks and requirements, and risk factors (e.g., smoking, obesity, stress, mental illness). From this needs assessment, a baseline can be established to develop a benefits package tailored to your current needs with the flexibility to meet future needs and your budget. There are many options for restructuring health packages. Some examples follow:

1. Self Insurance–Self insurance plans have several advantages, including the generation of investment income, potential reductions in administrative costs, reduced tax burden, and improved claims data. In general, self-insurance plans for most local governments have not demonstrated significant cost savings due to inadequate management, risk assessment, and prevention strategies.

2. Health Savings Acccounts–A potentially effective supplement (indeed, a quasi self-insurance plan) is the use of health savings accounts (these can be partially or fully funded by the entity) in coordination with a high deductible health insurance plan. Some data indicates that health savings accounts reduce costs by about 12 percent for single coverage and 34 percent for family plans.

3. Benefits Consortium–A benefits consortium pools smaller employers into a larger insurance unit, providing economies of scale in benefits administration and cost savings in terms of discounts for larger market share. However, typically significant cost savings have not been demonstrated by local governments due to ineffective use or displacement of savings to other parts of the budget.

4. Union and Management Cooperation Prevention Programs–Union and management cooperation has reduced health care costs by removing health care from collective bargaining and placing it under the control of a joint health care committee. In such programs, prevention and education programs can help reduce health costs by subsidizing wellness programs, physical fitness, and incentives for smoking cessation.

I’d recommend starting with a needs assessment and considering some combination of (2) and (4) [with the help of a trusted consultant].”

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