Navigating the Depths of Health Plan Risk Financing: A Comprehensive Guide

As a business owner or HR professional, managing the complexities of health insurance can feel like navigating uncharted waters. With rising costs, opaque pricing structures, and a sea of options, it’s easy to feel overwhelmed. But fear not, we’re here to be your guide, helping you dive into the world of health plan risk financing using a simple analogy that is sure to help you expand your purchasing strategies.

Diving into the Wave Pool of Fully Insured Health Plans

Let’s start with the most familiar option: the fully insured health plan, or as we like to call it, the “wave pool.” This is the go-to choice for many businesses, where the insurance carrier manages the entire pool and you, the policyholder, pay a fixed premium, regardless of your claims experience.

Just like a community wave pool, the fully insured plan allows anyone in the group to jump in, regardless of their swimming abilities or health risks. The insurance carrier is responsible for maintaining the pool, setting the waves in motion, and ensuring everyone has a safe and enjoyable experience. As the policyholder, you simply pay your admission fee (premiums) and enjoy the ride, without worrying about the day-to-day operations.

The upside of this approach is the predictability and simplicity it offers. You know exactly what you’ll be paying each month, and the insurance carrier takes on the financial risk. However, the downside is that you have limited control over the pool’s management. You can’t decide who gets to swim, how the waves are generated, or even when the pool is cleaned. And if the pool gets overcrowded (high claims), everyone in the group pays more to cover the costs, even if your own claims are low.

The fully insured plan is a great option for businesses that prioritize stability and want to minimize their administrative burden. It’s a safe choice, but it may not provide the level of customization or cost-savings that some organizations are seeking.

Dipping Your Toes into Level Funding with The Above-Ground Pool

If you’re ready to take a more active role in managing your health plan, the level-funded approach might be the “above-ground pool” you’re looking for. In this scenario, you’re still working with an insurance carrier, but you now have your own risk pool.

Simply put, you decide who gets to swim, how the water temperature is maintained, and how the pool is cleaned. This level of control allows you to tailor the plan to your company’s specific needs and employee demographics, potentially leading to cost savings.

One of the key advantages of the level-funded approach is the transparency it provides. You have access to your own claims data, which enables you to identify opportunities for plan design changes and cost-saving measures. At the end of the year, you only pay for the water (claims) that was actually used, with the potential for a refund if your claims experience was favorable.

However, the level-funded plan does come with some additional responsibilities. You’ll need to maintain a high-quality “pH” (claims management) to ensure the pool stays clean and healthy. And if there’s a significant “splash” (large claim), you’ll be responsible for covering the cost, though stop-loss coverage can act as a safety net to prevent you from being fully exposed.

The level-funded plan is an excellent choice for businesses that want to take a more active role in managing their health plan, but aren’t quite ready to dive into the deep end of self-funding. It’s a great way to dip your toes into the world of customized health plan management, with the added benefit of potential cost savings.

Joining the Country Club of Captive Health Plans

If you’re ready to take your health plan management to the next level, the “country club pool” of captive health plans might be the perfect fit. Captive plans are a collaborative approach where like-minded businesses come together to form a shared risk pool, similar to a private country club.

In a captive plan, you’re no longer swimming alone. You’re part of a group of businesses that have come together to tackle the rising costs of health care. By pooling your resources, you gain access to shared services, dedicated staff, and experienced risk managers who handle the day-to-day operations of the pool.

One of the key advantages of the captive approach is the increased purchasing power. By joining forces with other businesses, you can negotiate better rates and amenities for your plan, just like a country club negotiating better deals with vendors. This shared risk and shared responsibility model also means that if you have a particularly bad year, you’re not solely responsible for the financial burden.

Captive plans also offer the potential for capital contribution dividends, where unused fees are refunded to the members, similar to a country club refunding unused membership dues. And like a private club, there’s a selective membership aspect, as businesses must meet certain criteria and pay a capital contribution to join the captive.

The captive approach is all about balance – you get the benefits of shared support and purchasing power, with the added bonus of greater control and potential savings that come with self-funding. It’s the perfect mix of independence and collaboration, all within a well-managed, high-performing environment.

Diving into the Deep End of Self-Funded Health Plans

For those organizations ready to take the plunge and truly own their health plan strategy, the “in-ground pool” of self-funded plans might be the perfect choice. Self-funding is the ultimate in health plan ownership, where you have complete control over the design, management, and execution of your plan.

Think of a self-funded plan as building your own custom in-ground pool. You get to choose the size, depth, features, and even the landscaping around it. You decide who has access to your private pool, just like determining who is covered under your health plan. And you manage the water quality, with every drop accounted for, providing you with full transparency over your claims and expenses.

With a self-funded plan, you have the flexibility to adjust the “water temperature” (benefit design) to fit your company’s needs. Want to offer a more comprehensive wellness program? No problem. Need to introduce new incentives to encourage healthier behaviors? You’re in control. This level of customization and agility is simply not possible with a fully insured or even a level-funded plan.

Of course, with greater control comes greater responsibility. As the pool owner, you’re financially responsible for any major “cracks” (catastrophic claims) that may occur. But just like installing a state-of-the-art drainage system to protect your in-ground pool, you can put smart safety nets in place, such as stop-loss insurance, to limit your exposure.

The real beauty of the self-funded approach is the freedom and flexibility it provides. While the risks are real, self-funding empowers you to build a plan that truly reflects your company’s values and priorities. It’s about more than just cost control – it’s about owning your strategy, maximizing your efficiency, and reaping the rewards of your efforts.

Choosing the Right Pool for Your Organization

Now that you’ve explored the four different health plan risk financing strategies, the question remains: which pool is the right fit for your organization?

The answer, as with most things in business, depends on your specific needs, goals, and risk tolerance. Here are some key factors to consider when making your decision:

• Control: How much control do you want over your health plan’s design, management, and decision-making process?
• Risk: How much financial risk are you willing to take on, and do you have the resources to manage it effectively?
• Customization: How important is it for your health plan to be tailored to your company’s unique needs and employee demographics?
• Cost Savings: Are you primarily focused on predictable costs, or are you open to the potential for greater cost savings through more active plan management?

If you’re looking for a simple, predictable option with minimal administrative burden, the fully insured “wave pool” might be the way to go. If you’re ready to take a more active role in managing your plan, the level-funded “above-ground pool” could be a great intermediate step.

For businesses seeking greater control, customization, and potential cost savings, the “country club pool” of captive plans or the “in-ground pool” of self-funding might be the best fit. These options require a higher level of commitment and responsibility, but they also offer the greatest opportunity to align your health plan with your company’s strategic objectives.

Regardless of which pool you choose, it’s important to work with experienced professionals who can guide you through the process and help you navigate the complexities of health plan risk financing. At BeneSmart, we’re here to be your trusted partner, diving into the details and making sure you make the best decision for your organization.

So, are you ready to make a splash? Explore our other videos to learn more about health insurance strategies, or reach out to us to start charting your course towards a healthier, more cost-effective future.

Contact BeneSmart to begin building your five-year roadmap and unlock the power of benefit expense management for your organization.

To learn more about BeneSmart’s innovative solutions and how they can help your business, check out our YouTube channel, https://www.youtube.com/@BeneSmart and explore our other informative videos.(https://youtu.be/2A6PuItElUs, https://youtu.be/VOa3c8SNJz8, https://youtu.be/UOjbo9Dprhw?si=6ZXK_iUY4Yf_EhSc).

Don’t forget to subscribe @ https://www.youtube.com/@BeneSmart to stay up-to-date on the latest trends and strategies in the world of benefit expense management.Ready to take the first step? Reach out to Rich Westermayer https://www.linkedin.com/in/richardwestermayer/ at rich@benesmartservices.com to get started on your own transformative journey.