If you have 25 or more employees, or $40,000+ annually in health and dental insurance claims, you should seriously consider moving to a self-insured benefits plan. They offer significant savings over a traditional experience rated plan.

Using the example of a 50 person Vancouver firm with an established benefits plan paying $100,000 a year in health and dental premiums, let's see how self-insurance works:

Currently, the business covers life insurance, health and dental insurance for its employees. Each year at renewal, their health and dental premiums have been steadily increasing, despite good claims levels.

This year, their insurer's renewal report says that their health and dental claims are at 78% "incurred", meaning that the claims paid out to employees are in a proportion of 78% to the total premiums paid by the employer. Or to look at it another way, this means that of the $100,000 paid in premiums, $78,000 went towards paying claims.

The plan's "Target Loss Ratio" (TLR), set by the insurer at 75%, is the target proportion of claims to premiums paid. Although it seems that the paid claims of 78% is very close to the 75% target, the insurer is now asking for a 25% increase to rates! Why is this? Well, the insurer calculates several factors into the renewal such as trend factors and reserve factors that can really inflate the premiums.

With a self-insured plan, you can keep the pooled benefits like life and disability insurance in place, but you take away the trend and reserve factors for health, vision and dental care coverage. You still have a supplier that will adjudicate claims and reimburse employees, but the business will pay for claims as they come in. 

Each month the business receives a summary of the claims paid, and continues to fund their plan at a pre-determined monthly rate. The funding is determined by looking at past claims patterns. Depending on the size of the business, the administration fee on processed claims can range from 10% to 15% of the claim amount.

In our example, the 50 person business is now paying only 12% in administration fees on their claims. Right away, the business is saving money because for each premium dollar, less money is paying for administration and more is paying for the claim itself. Under their old insured plan, they were effectively paying 25% in administration fees! Year over year, the savings can really add up.

The business is also aware of the potential risk they are taking on by self-insuring, so they have stop-loss coverage in place for their health care plan. Stop-loss coverage is available for amounts ranging from $3,000 to $20,000, and kicks in to limit employer liability when an employee's health costs for that year reach the stop-loss ceiling. This coverage is available for several dollars per employee per month, and also provides emergency out of country travel medical insurance.

Here's one of the best parts: if the claims that are submitted to the plan are less than expected, the funding built up within the plan is the client's to keep.

This is a brief example of how self-insuring health and dental coverage works. Self-insuring is not for every business, as it works best for companies with a stable employee base and an established claiming pattern. A minimum number of employees, usually 25+, is also a requirement.

If you are tired of renewal increases and meet these criteria, True Benefits can show you whether self-funding is a solution you should consider. On a complimentary basis, we will project the next five years for you comparing an insured and a self-insured benefits program.

Please feel free to contact Rachel von Sturmer at 604.872.2866 for more information.