Self-insurance as an option for small and mid-sized firms

Businesses of all sizes are facing a looming cost increase as this fourth quarter rolls around: their health insurance.

According to the Society of Human Resource Managers, in 2018 the average cost increase will be 8.4 percent. But for businesses with 200 or fewer employees, that increase could easily be in the double digits.

Most businesses facing this increase will do what they have always done – shop their insurance carrier against the market and see if someone will give them a better rate.

However, savvy businesses owners have a few other alternatives to consider to lower that lurking increase.


According to the Society of Human Resource Managers, only 17.4 percent of small businesses are self-insured, while mid-sized firms (100-500 employees) self-insure about 30 percent of the time. That number has been steadily increasing and is expected to jump even more this renewal season.

The reason why is simple: traditional fully insured plans can be expensive. The Affordable Care Act introduced regulations such as age banding for small businesses, medical loss ratio and numerous taxes included in the cost of insurance.

These costs, along with the ever-increasing costs of health care in general, have driven up the cost of being fully insured.


Self-insurance offers a way out of some of the taxes and fees associated with the ACA, and it also allows businesses to only pay for the cost of care that is used.

For example, if you’re fully insured today and spend $1 million on health insurance costs, then you’re going to spend $1 million that year and it’s gone. If you’re self-insured and you’re projected to spend $1 million but only spend $800,000, you’ve saved $200,000.

To be sure, there are other moving parts. But in a nutshell, self-insuring offers a lot of opportunity for businesses to save money and to easily manage potential catastrophic claims.

Self-insurance also allows you to explore other alternatives to keep down costs for the long haul.


Prescription costs make up 20 percent of a health plan’s expenses, on average. However, that number is predicted to rise to 50 percent of the overall cost by 2020, according to pharmacy benefit manager Confidio.

Businesses unable to control this cost will be on the losing side of the health care equation in fairly short order.

Moving to a self-insured model will allow you to explore carving out your pharmacy plan to a more transparent model or allow you to receive the data you need from your existing carrier to make better pharmacy-plan decisions.


The lowest hanging fruit is to receive prescription rebates, which often amount to 50 percent of the overall cost of a medication.

On average, prescription rebates amount to $100 per brand name drug dispensed, which can equate to a large amount of savings for a business.

Attacking the pharmacy rebates alone can save 15 percent on prescription costs and allow you to stem the tide of rising pharmacy expenses.


Wellness is nothing new, but often companies take a shotgun approach to wellness. Often, their theory is, “Make everyone generally healthier and our costs will go down.”

Unfortunately, that is not consistently the case.

Instead, using plan data on employees’ performance often identifies a few key areas that a business can focus on to make a real bottom-line impact.


One key area to examine is a care compliance report that shows how many people are out of compliance with a medication or treatment course.

If a company can find the area, such as diabetes medication, that is out of compliance, it can avoid major claims down the road.

There are many other areas a business can look to, but the key is having the data to make smart decisions – and typically having a self-insured plan is the only way to get that information.


While self-insurance is growing, it is by no means for everyone.

To consider that route, your overall costs would need to be fairly in line with what you would pay under a fully insured plan.

Not to mention, you need to ensure that the vendors you’re considering can accommodate your funding requirements, as not every business is prepared to pay out for a large claim in the first month of its plan.

But savvy brokers will be able to find options that suit the needs of your business.

Kyle McLemore is the vice president of sales and operations for Equinox, an employee benefits consulting firm in Emmaus. Equinox (www.agentequionx.com) services more than 600 clients across eastern Pennsylvania and specializes in self-insurance, compliance, customer service and benefits administration. He can be reached at kyle.mclemore@agentequinox.com.

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