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MagnaCare, capitalizing on the ACA, proving self-insurance is worth a look

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MagnaCare CEO Joseph Berardo says employers can save 6 to 8 percent with self-insurance.
MagnaCare CEO Joseph Berardo says employers can save 6 to 8 percent with self-insurance. - (PHOTO BY AARON HOUSTON)

As expected, the increasing financial cost of insurance brought on by the Affordable Care Act has some companies moving away from the traditional third-party coverage.

They're just not going where everyone expected.

Companies of all sizes looking to rein in spending and improve the health of their workforce have not been flocking to the exchanges but are instead moving to self-insurance — a slightly risky alternative that traditionally has only been used by larger companies.

Joseph Berardo Jr., the chief executive of MagnaCare, a Tinton Falls-based company that designs and manages self-insured health plans, said enrollment grew 13 percent in 2013, and that growth rate is continuing this year.

By the end of 2014, Berardo expects to have 850,000 people covered, including employees and their dependents.

The reason, he said, is simple: "Employers have the ability to save 6 to 8 percent or so by being self-insured."

With self-insurance, companies collect their own premiums to pay medical claims. If claims come in lower than cost of the premiums, the company (not the third-party insurer) keeps the difference.

Companies need to purchase stop-loss reinsurance to guard against runaway claims — hence the risk — but they often come out ahead over traditional plans.

That's something that Fred Bunker, the chief operating officer of Eden II, found out when he switched to a self-insured plan from MagnaCare three years ago.

Until he switched Eden II's 650 employees to self-insurance, Bunker would routinely switch insurance companies in an effort to avoid double-digit premium increases.

"We decided to go into (self-insurance) in order to regain some control over our benefits costs and also to optimize services to our employees, in the most cost-effective way," Bunker said. "(With self-insurance), a lot of the mystery is taken out of the process."

Bunker said there are other benefits as well.

"We knew a certain amount of our premiums (with traditional coverage) went into a reserve for potential problems, but we never had the ability to manage any of that," he said. "We could not determine the cost of the various components of the program, so we couldn't make intelligent decisions about changing our program."

Larger employers have long embraced self-insurance.

Mike Thompson, the New York metro health care practice leader for PricewaterhouseCoopers human resource services, said its surveys found 85 percent of companies with more than 1,000 employees were self-insured.

The change, he said, is coming with smaller companies.

Thompson said the number of companies with fewer than 500 employees that are choosing to self-insure jumped from 22 percent in 2012 to 31 percent in 2013.

"It is really in the midsize to small/midsized range that we are starting to see a pickup in self-insurance," he said.

The traditional health insurance companies have long provided employers with self-insurance plans, including Horizon Blue Cross Blue Shield of New Jersey and Aetna. And they too are noticing an increase in business, even among employers with fewer than 50 employees.

"We are seeing more and more (employers) going to self-insurance," John Lawrence, the president of Aetna in New Jersey, said at a recent business conference in Somerset.

Cost is the biggest factor.

Bunker said in the first two years with MagnaCare, premiums were flat. They then grew about 8 percent last year — a figure his team estimated would have been in the double-digits with a traditional health insurance plan.

The company also saves because it pays lower premium taxes under the Affordable Care Act, since the self-insured plans purchase less insurance.

But Eden II must spend more time and money on administration issues as a self-insured employer. And it must maintain reserves to pay claims.

Bunker, however, feels it is worth it.

"Because we have control and complete visibility to all our reserves, we can take some prudent risks and utilize some of our reserves to keep the premium increases to a minimum," he said. "If we find we are having a good year and we're blessed with relatively good health of our population and we're building reserves, we can always take the opportunity to reduce some of those reserves and maybe reduce our costs accordingly — which we wouldn't have the opportunity to do (under a fully-insured plan)."

Another key advantage of self-insurance is that Eden II has access to aggregate data about the health of employees and their families. So the company is able to draw a connection between efforts to improve employee health and the cost of providing health coverage, Bunker said.

"We personally experience what our participants are going through in the real world. We can tell where the needs are for our employees and try to craft solutions," he said.

“Because we have control and complete visibility to all our reserves, we can take some prudent risks and utilize some of our reserves to keep the premium increases to a minimum,” he said. “If we find we are having a good year and we’re blessed with relatively good health of our population and we’re building reserves, we can always take the opportunity to reduce some of those reserves and maybe reduce our costs accordingly — which we wouldn’t have the opportunity to do (under a fully-insured plan).”

Another key advantage of self-insurance is that Eden II has access to aggregate data about the health of employees and their families. So the company is able to draw a connection between efforts to improve employee health and the cost of providing health coverage, Bunker said.

“We personally experience what our participants are going through in the real world. We can tell where the needs are for our employees and try to craft solutions,” he said.

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

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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