Health insurance is one of those things that is an expense that becomes more and more complicated. It appears to be the hardest to manage and has the most options with companies that have 100 employees or more.
Once your company reaches this size you are usually not allowed to have your health plan community rated. This means that your health insurance rates are based on the experience of your own group. One or two adverse health issues can have a large negative impact on the cost of the insurance you provide your people.
I’ve come to believe that once your company grows past 50 employees it becomes time to think about and examine other alternatives that might be available. I’ve listed some of them below and would love to hear about which ones work best for you.
Fully insured plan. This is where the insurance company provides the vast majority of benefits for those who need medical care. Usually these plans have an in network versus an out of network cost and there is a deductible that goes along with service that is provided.
Health Savings Plan. This plan is a fully insured plan with the exception that there is a large deductible before the medical insurance company kicks in for coverage. In most plans, the employer pays for the insurance and the employee pays for the deductible. I encourage employers to switch this around. I like to see the employees pay for the insurance and employers pay for the deductible. This way your employees might take more ownership in their medical insurance costs.
Partially self-funded plan. Under this method of payment the employer takes a large part of the cost risk on themselves. They self-insure with a large deductible for the group and a relatively large deductible for individuals within the group. For company plans that are being rated as individual risks this often helps employers by starting to move them towards being the primary funder for medical insurance they provide.
Partially self-funded plan with 831(b) captive insurance company. If a company is providing a partially self-funded plan it often makes sense to combine this with a self-owned captive insurance company. We are seeing larger private businesses being forced into becoming medical insurance companies. Since this is reality it makes sense that they act like an insurance company and start their own captive where they can get the benefits and save for the rainy day that could arrive with a large loss.
Medical insurance for private businesses has become a mess. Each of the plans above has a large amount of complexity. It’s important for you to work with a medical insurance advisor who can help you understand and decide which of the four options listed above works best for you.