Why Small, Self-Insured Groups Should Think Twice About “Too Good to Be True” Offers from Fully Insured Carriers

For business owners or benefits managers, securing affordable healthcare for your employees is a top priority. With rising medical costs and increasingly complex options, it can be hard to choose a health plan - especially when fully insured carriers often come knocking with seemingly attractive offers. They promise low premiums and stable rates but these initial savings may not last long, and hidden risks can end up costing you more than you bargained for.

If your organization is part of a self-insured group, you're likely already familiar with the benefits of the self-funding model: you pay for your employees' healthcare claims as they occur, rather than paying a fixed premium to a carrier. This offers greater flexibility and potential cost savings compared to fully insured plans. It's important to be aware of potential pitfalls, especially those "too good to be true" deals that fully insured carriers may offer, which can often mask hidden costs and limitations.

The Illusion of Low Premiums

One of the most attractive aspects of fully insured plans is their promise of low predictable premiums. This can appear incredibly appealing, especially when compared to the fluctuating costs of self-insured plans, which depend on your actual claims experience. But this initial low premium can be a red flag.

Fully insured carriers calculate premiums based on group demographics, industry trends, and their own underwriting guidelines, which are often broad and not reflective of your group’s specific health needs. This means that while you might be quoted a low premium at first, that number could skyrocket at renewal time once the insurer recalculates based on actual claims experience.

For small, self-insured groups, this is where the real risk lies. Carriers might be offering a low premium to attract your business, but this might not represent what you’ll truly be paying once your group’s claims start to materialize. If your claims exceed expectations, which is common in certain industries or employee demographics, your premiums could increase significantly at renewal time, leaving you stuck with a higher cost than originally quoted.

Stop Loss Renewal Considerations

Stop loss insurance can be an important part of any self-funded plan. It protects self-insured employers from catastrophic claims by capping their liability for individual and aggregate claims - providing a safety net that limits how much you can be accountable for in any given year.

Many fully insured plans bundle stop loss insurance with the overall coverage package, making it difficult to understand. While the initial premium might look appealing, stop loss renewals can be a different story. Insurers often hide the true cost of stop loss renewals in their initial quotes, offering an artificially low rate upfront and only revealing higher rates once the policy is in effect.

It's important to be aware that stop loss carriers can increase premiums based on your group's claims experience or broader market trends. This can result in significant increases in your renewal costs. This unpredictability and lack of transparency makes it difficult to budget effectively, and a sudden premium spike can create financial strain for your organization.

The Lack of Transparency

Fully insured plans are much less transparent than self funded plans. When you opt for a fully insured plan, you’re essentially handing over control of your spending to the insurance carrier. Unlike self-insured groups, where claims data is typically available and transparent, fully insured carriers often keep their pricing and claims experience closely guarded.

Under a fully insured plan, you won’t have access to crucial information such as claims data, which limits your ability to track and control costs. You’re also unable to customize benefits to better suit the specific needs of your group. Additionally, the insurer typically keeps the details of the provider and hospital networks hidden, making it more difficult to understand your options. With fully insured plans, you don’t have visibility into which drugs are driving the most spend, or the opportunity to manage drug utilization, making it difficult to proactively control costs.

This lack of transparency can make it hard for you to understand why your premiums are increasing at renewal time or to identify areas where savings could be realized. With self-insurance, you can better control your plan’s design, costs, and claims management. But when you’re fully insured, you lose much of this control, and you may be left in the dark when it comes to understanding what’s driving cost increases.

Long-Term Cost Control and Flexibility with Self-Insurance

Self-insurance offers a level of control and flexibility that their fully insured counterpart simply can’t match. By keeping your plan in-house and assuming the responsibility for claims, you have the ability to manage your healthcare costs more effectively. For instance, you can understand drug spend and utilization, monitor claims, and make plan design changes that align with your employees’ actual healthcare needs.

While self-insurance can require more upfront investment in time and resources, it can offer substantial long-term savings and the ability to directly influence your healthcare costs. In contrast, fully insured plans lock you into a fixed premium, and if your carrier has underestimated your group’s claims experience or if healthcare costs rise in the broader market, you’ll be at the mercy of their pricing.

The Cost of Premium Increases at Renewal

In regards to small, self-insured groups that have switched to fully insured plans in search of stability, premium increases at renewal can be a painful surprise. Since the carrier is underwriting your plan based on their own criteria (and not your actual claims experience), renewal premiums are subject to industry-wide trends and broader health factors. Even if your group has had low claims, you could face steep premium increases due to the insurer’s overall portfolio performance.

Stop loss renewal rates often follow this same trajectory - when your claims experience is unfavorable, insurers will raise stop loss premiums, and because these rates are bundled with the rest of the premium structure, you may not even realize the full extent of the increase until it's too late.

What You Can Do: Shop Smart and Stay Informed

It’s important for small, self-insured groups to be strategic when evaluating fully insured offers. While low premiums and enticing stop loss offers may seem like a good deal at first, you should look beyond the numbers and ask the right questions before committing to a plan.

When evaluating fully insured offers, it’s crucial for small, self-insured groups to adopt a strategic approach. While lower premiums and attractive stop loss terms might seem like a win at first glance, it's essential to dig deeper and ask the right questions before committing to a plan.

Here are some key considerations:

1. Review the Claims History: In a fully insured model, you have the advantage of accessing claims information, unlike with self-insured plans where carriers often withhold such data, particularly for small groups. Reviewing claims history can provide valuable insights into the risk profile of a plan. 
2. Evaluate Stop Loss Terms: Understand the specifics of the stop loss terms, including how the coverage is structured and how renewals will be managed. Knowing the details here is key to managing risk and maintaining financial control.
3. Clarifying Renewal Terms: Ensure transparency from the carrier or any third-party vendors you’re working with regarding potential premium increases at renewal time. Ask what factors will impact these changes so you can plan accordingly.
4. Consider Long-Term Sustainability: Focus not only on the immediate savings but also on the sustainability of the plan in the years to come. Look beyond short-term gains and think about how the plan will perform over time, especially when considering the overall costs and predictability it offers.

Self Insured vs Fully Insured

The key difference between fully insured and self-insured plans lies in financial risk and control. In a fully insured plan, the employer pays a fixed premium to the insurer, which assumes the risk for claims, including drug spend. While the costs are predictable, fully insured plans offer limited flexibility in customizing benefits or controlling costs. For example, if drug utilization is lower than expected, there’s no refund, and premiums remain fixed due to state taxes and regulatory fees.

In contrast, a self-insured (or self-funded) plan allows the employer to assume the financial risk, setting aside funds to cover claims. This model provides greater control over healthcare costs, including the ability to manage drug spend and access claims data to make informed decisions. If drug utilization is lower than anticipated, self-insured employers can realize savings. Self-insured plans also allow for more flexible, customizable plan designs to better meet the needs of the workforce.

When transitioning to a self-insured model, it’s crucial to partner with the right vendors, such as a Third-Party Administrator (TPA), Pharmacy Benefit Manager (PBM), and stop-loss carrier. These partners should align with the employer’s goals, ensuring transparency and effective management of claims and drug costs. While self-insured plans carry more risk, they can offer significant long-term savings and control, especially when managed correctly.

A Smarter Solution with SmithRx

At SmithRx, we are fully aware that small, self-insured groups face tough choices when it comes to healthcare. While fully insured plans might look appealing with their low initial premiums, the reality is they often come with big surprises - like rising premiums and hidden costs at renewal. These unexpected increases can throw off your budget and limit your control over your healthcare spend.

Self-insuring gives you the flexibility to more effectively manage costs and design a plan that fits your organization’s needs. With self-funding at SmithRx, you will have full access to all of your claims data, no hidden costs or fees at renewal, the contract and fees are simple and straightforward and can simply make adjustments that make sense for your business.

SmithRx partners with self-insured employers to help you optimize your pharmacy benefits, cut unnecessary costs, and improve outcomes for your employees. We are proud of the fact that we are a modern Pharmacy Benefit Manager (PBM) that provides full transparency and offers solutions that give you more control over your pharmacy spend, while ensuring your team gets the medications and care they need.

In short, self-funding is the smarter choice for long-term savings and a healthier bottom line. Reach out today to find out how SmithRx can help you take charge of your pharmacy benefits and make your healthcare strategy work for you.