How Small Business Owners Can Handle Rising Annual Health Insurance Premiums
Many small businesses continue to struggle with the rising costs of health insurance for their employees annually. Up until recently, there have not been any real solutions that allow small business owners to manage these costs without compromising the quality of health insurance they provide to their employees. A solution to this problem which is rapidly gaining popularity is a combination of Direct Primary Care with high deductible, self, or level funded health insurance plans.
Direct Primary Care (DPC) is a model of care where patients have a direct relationship with a direct primary care physician or practice in exchange for a low monthly membership fee. Members receive easy, timely, convenient, unlimited access to care with many services included as part of their membership. Direct Primary Care practices do not bill insurance for any of the services they provide. All services are either included in the membership or are available for a small extra fee which the patients can pay out of pocket or with their HSA if they have one. The cost of the employees’ Direct Primary Care monthly membership fees are either fully paid by the employer or split between the employer and the employees. Pre-tax dollars can be used to pay the membership fees if Direct Primary Care is packaged along with the health insurance.
Since Direct Primary Care Practices have small numbers of patient members and are not incentivized by health insurance to keep their schedules fully booked, they are able to provide easy, timely, convenient access to primary care and take care of all major primary care needs in a very cost-effective way. By doing this, Direct Primary Care practices help keep patients from having to seek expensive care in emergency rooms, urgent cares, and other similar centers. Direct Primary Care physicians also help reduce unnecessary specialist referrals as they can offer more services to their patients and are more focused on quality of care. In addition, with smaller numbers of patients, Direct Primary Care Physicians have the time to provide focused attention to their patients who may need some extra help in getting and staying healthy leading to prevention of chronic conditions, better management of chronic conditions and avoidance of expensive hospitalizations. All this helps reduce the trend of rising annual health insurance claims that lead to rising premiums.
To understand what self-funded or level funded health insurance means, it is important to understand what “Fully Funded” insurance means. Fully funded insurance plans are the typical traditional insurance plans which are carried by the big names in the insurance industry. In these plans, the health insurance company takes on the full financial risk of the employees’ healthcare and is responsible for managing and paying out the claims while the employer and employees are responsible for paying the premiums. These plans are typically very expensive and are associated with rising annual premiums. They are now only appropriate for larger companies who can afford the expense and the rising annual premiums. Smaller businesses are finding fully funded health insurance to be increasingly unaffordable.
With self-funded insurance, the employer is the sponsor of the health insurance plan, so the employer takes on the financial responsibility of paying their employees healthcare claims. Self-funded insurance plans are more affordable and more flexible than fully funded insurance plans. The sponsor typically contracts with a third-party administrator (TPA) to administer and manage the insurance plan. As the sponsor, the employer has complete freedom of choice when it comes to TPAs, networks, plan documents, plan design, and cost-containment solutions. Self-funded plans allow for claims data transparency to the sponsors, so this gives the sponsors the ability to analyze the numbers and adjust their plans and/or create solutions to contain costs as needed. However, there is the risk of having unforeseen expensive claims that can use up the employer’s entire budget. This is easily managed by purchasing stop-loss insurance that will cover the cost of excessive claims. The cost of stop loss insurance should be included in the budget for the self-funded insurance plan. Also, with self-funded insurance, businesses get to keep any monies in their budget not spent on claims annually. Any unused monies belong to the business since the business is the plan sponsor.
A level-funded health insurance plan is a partially self-funded health insurance plan. It has features of both self-funded and fully funded insurance plans. Level funded health insurance builds stop loss insurance directly into the premiums so that claims costs to the employer are capped and the financial responsibility for claims are shared between the employer and the stop loss insurance. Like fully funded plans, level funded insurance plans allow the employer to have a fixed dollar amount that they set aside for premiums each month. This money goes towards payment of claims. Any claims that use up the budget are covered by the stop loss insurance, so the employer is never at risk financially. Like self-funded insurance plans, Level funded plans are more affordable than fully funded insurance and the plans can be created to allow the business owner to receive a credit of unused monies in their budget annually. On the other hand, like fully funded insurance plans, level-funded health insurance plans do not provide claims transparency to the employers and the employers have little control over the plan elements. The credit received for unused funds is also usually only a portion of the unused funds and may be dependent on certain conditions.
So, by combining Direct Primary Care with high-deductible, self or level funded health insurance plans, employers can keep their employees healthier and avoid expensive hospitalizations and unnecessary utilization while also providing their employees with high quality health insurance and managing their health care costs at the same time.
It is important to point out that utilizing high-deductible, self, or level funded health insurance plans alone without Direct Primary Care does not result in the same cost savings. The savings are much more when Direct Primary Care is included in the package. This is because keeping employees healthy and away from hospitalizations and unnecessary utilization in the traditional system of care where healthcare providers are incentivized to maximize their billing is integral to the cost savings in this model. As an example, one visit to the emergency room which a DPC practice helps prevent easily results in a claims cost savings of $2000 to over $5000. In addition, when Direct Primary Care is packaged with the health insurance plan, pre-tax dollars can be used for payment of membership fees which is an additional savings to the employer.
Traditional health insurance brokers who sell fully funded traditional health insurance plans do not have an incentive to provide information about this solution. This is because they make their money in commissions when they can sell their expensive, fully funded health insurance plans. In fact, the more expensive the premiums, the more they make in commissions. Therefore, they are not able to help with information on how to create the solution just described. There are only a few benefits advisors who have the knowledge of how to create this solution for small business owners with Direct Primary Care as the foundation.
At Katy Premier Primary Care, we partner with some of these knowledgeable benefits advisors to provide the comprehensive solution of Direct Primary Care combined with high- deductible, self or level funded, health insurance plans for small businesses in the Katy/Houston,Texas area who need to get a handle on their rising health insurance premiums. For more information about how we can help you manage your small business’s rising health insurance costs, contact us at [email protected] or via phone call at (281)978-2624.