Higher Ed Story: Does Self Insurance Make Sense for Higher Ed Healthcare?
by Nathan Carmany, CFP®, Certified Financial Planner
As the Affordable Care Act ages another year, employers become anxious about premium increases issued by insurance companies. Often, companies deal with rising premiums by changing benefits, deductibles, or moving away from traditional, preferred provider organization, (PPO), plans in favor of high-deductible plans with a Health Savings Account. However, some larger institutions have been seeking alternative ways to help control cost.
One popular alternative goes back to the mid-1990s (4) Audrey Williams notes, in an article from the early 2000s, that premium increases could be as high as 36%, leading institutions to study self-insurance choices (4.) The College and University Professional Association for Human Resources 2015 Employee Healthcare Benefits in Higher Education Survey reports 20% of respondents made the following changes in 2015 (2.)
- Increased in-network deductibles
- Increased out-of-pocket limits
- Increased employee share of premium costs
- Increased employee share of dependent coverage costs
- Adopted or expanded wellness program/initiatives
How does self-insurance work?
In a fully insured plan, the employer pays a monthly premium per employee (which includes the employee portion) to an insurance company, who then assumes responsibility for health care on the covered participants. The insurer sets up coverage based on demographics and health of the covered participants. Fully insured plans are attractive to small groups, while self-insured may be attractive for groups of 5000 or more participants.
In a self-insured plan, companies and universities will create their own health plan by organizing benefits, premium, and providers. Instead of paying premiums and an insurer, the institution invests the money internally in creating the plan.
Self-insured plans display two classifications of expenses: fixed and variable costs (1.) Fixed costs include knowing items for administering the plan. Variable costs include cost of claims (1.)
Does self-insurance make sense for my university?
Slightly more than half, 51.2%, of United States university health plans were self-insured (5.) Two main benefits exist for this plan including: lower overall cost as profit margins are not paid to insurance companies, and customized benefits tailored to the need of plan participants versus a template used for many organizations.
If your university or college is, smaller chances are coverage is provided by a fully insured program. While larger universities may be self-insured, they are open to variable costs running higher than premiums received. As a backup, having a reinsurer is not uncommon, nor is using an insurance company as a service provider for managing claims.
What does it mean for my benefits?
Participants may notice little if any change. The PPO remains the plan of choice for major institutions (2.) However, high deductible plans are increasing to 46% of universities offering this benefit up from 17% in 2009 (2.)
One trend to watch involves the premium cost split between the university and participant. The University of Alaska in 2012 noted “UA’s employee demographic is older and includes more chronic health conditions (heart disease, diabetes, etc.)…(3.)” At the time, the split between the University of Alaska and employee was 83/17. At Montevallo University, the cost is 73/27 (6), reflecting a normal split.
Log in to your benefits site to review coverage and complete a search to better understand if your healthcare plan is self-insured or fully insured. If self-insured, is the university addressing risk properly with a reinsurer? What is your premium cost split? Understand the demographics of the employees. As employees get older, healthcare costs rise, creating a potential shift in the split and a rise in premiums. Contact your human resources department with any questions.
- Merhar, Christina. "Small Business Employee Benefits and HR Blog." Zane Benefits, Inc., 2016. Web. 9 Feb. 2016.
- “Survey Fact Sheet.” College and University Professional Association for Human Resources 2015 Employee Healthcare Benefits in Higher Education Survey. (2016). CUPA-HR 2005-06 Administrative Compensation Survey Highlights. CUPA-HR. 9 Feb. 2016.
- “University of Alaska Board of Regents Healthcare Presentation.” Lockton. (9 Dec. 2010). 2010 Strategic Planning for Client Name. Lockton, Inc. 9 Feb. 2016.
- Williams, Audrey. " More Colleges Turn to 'Self Insurance' to Deal With Rising Health Care." The Chronicle of Higher Education, 2016. Web. 9 Feb. 2016.
- Zackal, Justin. "Why Institutions Self-Insure Their Health Care Coverage." HigherEdJobs, 8 Apr. 2014. Web. 9 Feb. 2016.
- "Available Health Care Benefits." University of Montevallo, 2016. Web. 09 Feb. 2016.
Nathan Carmany, CFP® works for Watermark Wealth Management, LLC in Indianapolis, IN. Nathan enjoys meeting people and learning about where they come from, where they are going, their current challenges and helping them move forward. He can be reached at ncarmany(at)thewatermarkgrp.com