Insurance is all about risk, more importantly, paying someone to take a risk for you. In group insurance, the risk is that your employee’s might incur a large and costly medical claim. You would then have to pay it, even if you didn’t have the funds available. The insurance company takes the risk of paying for catastrophic claims, but charges a premium on everyday claims. 9 times out of 10 you pay more with insurance than without it. However, it is that 1 out of 10 that saves your butt.
I had a group which had excellent claims history, very stable and very low, especially when compared to their premiums. While I did everything I could to keep premiums down, I eventually reached a minimum premium which the insurance company refused decrease further. The claims of the group still warranted a rate decrease so I began looking for alternatives.
Self insurance came to mind, simply pay the claims, and be done with it. You will never overpay and as long as claims are low you have nothing to worry about. Except risk. Without an insurance company, any large claims are now the responcibility of the business. Risk reward, big rewards usually require big risks.
We needed some kind of insurance, but there must be something out there less expensive than what this client currently had. Their premium was more than twice what their claims were, they were not getting good value.
I found a product called Benaccount from a company I work with regularly, Benefits By Design. Benaccount lets you self insure what you are comfortable with and insure the rest. This way you get the best of both worlds, low insurance costs, but protection in case of catastrophic claims.
Benaccount relies on a health spending account for each employee; each account is funded to $1000 for a single employee and $2000 for an employee with family. This money is the first payor, every claim will reduce this account until the money is gone. The account is used for both health and dental claims. Once the account is empty, the employee switches to an inexpensive stop-loss insurance plan ($8/month single, $22/ month family) the stop loss doesn’t provide dental, paramedical or other small coverages however, it does provide coverage for prescription drugs, hospital, and large ticket medical items like electric wheelchairs etc.
A good way to think of the plan is as a stripped down health plan, with a high deductible of either $1000 or $2000. You take the risk that you might have to pay the deductible yourself, but after that you are protected. Speaking of risk, there is certainly a potential downside here, if every employee maxed out their claims, the total cost for this little 5 life group would have been $7700. When the insurance company guaranteed a rate of a only $6000. Giving up the rate guarantee was a risk the business owner had to agree to take, this plan could cost him more, while not likely to happen, it is still possible.
When agreeing to take on any risk, there needs to be a return involved. The return is if claims are lower than $6000, the company saved money.
At the end of the day, this group claimed, about what they always do, $2205.59 over the year on health and dental expenses. They paid $671.14 in insurance about 10% of their old premium, for the security that if a catastrophic claim occurs they will be safe.
Their total annual cost was $2876.73
Vs. Their insurance quote of $6203.26
The reward for taking a little risk?
$3,326.53 saved.
