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Next for do-it-yourselfers: Insurance More small companies consider setting aside claims money, rather than paying premiums per employee

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Joseph Berardo is seeing interest in self insurance from groups of just 50 workers.
Joseph Berardo is seeing interest in self insurance from groups of just 50 workers. - ()

Mike Thompson, the New York metro health care practice leader for PricewaterhouseCoopers Human Resource Services, said a majority of companies employing more than 1,000 workers are self insured, meaning they set aside money to pay for employee health claims, rather than paying an insurer a premium per worker.

Now, because of changes being ushered in under the Affordable Care Act, smaller companies are looking at this model, too.

"We're seeing increased interest from midsized employers, from 150 to 500 and even as low as 50 employees," Thompson said. The new ACA tax on health insurance means "the pendulum is swinging further toward self insurance."

The ACA's new health insurance tax does not apply to self-insured plans, thus giving self-insured plans a potential cost advantage. And while stop-loss policies — which self-insured companies purchase to protect against unexpectedly large medical claims — are subject to this new tax, they are a small part of the overall cost of a self-insured plan.

That's got more companies keen on this offering.

"We're seeing interest from groups with 50 employees all the way up to large employers," said Joseph Berardo Jr., CEO of MagnaCare, which manages health plans for its self-insured groups, including options for stop-loss coverage.

Berardo said self insurance gives employers flexibility to design their own plans, and provides the employer with data on employee health problems, "so the employer can take an active role in putting programs in place" to manage chronic ailments, like diabetes.

MagnaCare covers about 150,000 people in New Jersey. It expects to grow about 13 percent this year, and "smaller groups are making up the fastest component of our growth," Berardo said, adding that some small employers are sticking with fully insured plans as they test the self-insurance waters.

Community Surgical Supply, a Toms River-based company that provides in-home oxygen and intravenous drug therapy, is on track to save at least $500,000 this year after switching in January from a traditional health insurance plan to a self-insured plan from MagnaCare, according to John Bruther, chief financial officer.

The cost is lower "because we are taking on the risk of paying claims," Bruther said. The company's health plan covers more than 350 employees and their families, with about $2.8 million in total annual plan spending.

"We could have a bad claims year, but we have stop-loss (insurance) limits," so the risk is contained, he said.

About 20 percent of companies employing fewer than 250 self insure, according to Julie McCarter, vice president of products for Cigna's Select Segment, which serves smaller companies. But at Cigna, that number is closer to 50 percent.

McCarter said her company has been offering self insurance to small employers for more than 25 years. "We actually drive a stronger result into self-funding plans due to our history and specific experience with the products we have created for small employers," she said.

But it can be risky for companies that are too small. Jim Foglio, president of the insurance broker Fotek Insurance Solutions, in Wall, said he prefers at least 100 employees in a group, since at that size, the claims experience data is available from the employer's health insurer.

"When we get into a group of 250 (employees) or more, I would say that 75 percent of the time, we win on a self-insurance basis," he said.

Foglio said his goal is to save the employer between 15 and 20 percent on the total health insurance expenses by moving to self insurance.

"We will take some of the dollars we are saving with the self-insurance plan, and use some of that to build a bonus and reward package" that might encourage employees to quit smoking or lose weight, he said.

Integrity Health, of Princeton, provides self-insured groups with health plans that emphasize improved primary care for employees, coordination of the care they get from specialists, and encouraging health and wellness.

That model is ideal for bigger companies, said CEO Douglas Forrester.

"When you get above several hundred employees, the volatility of your claims goes way down, and you're paying too much unless you're self insured," he said.

Forrester said the ACA "has prompted people to focus on what their health plans are all about," instead of leaving everything up to their insurance brokers.

He said employers need to look beyond how much the plan costs, and what the deductible and co-pays will be for the employees, and focus on whether employees are getting the right care at the right time.

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

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