The Pitfalls of Fully Insured Employee Medical Plans

In the North Bay, many employer-sponsored health plans are HMOs

The security that health insurance offers undoubtedly enhances the development and retention of a viable and strong workforce. There’s no escaping it, in today’s market workers expect employers to offer a strong health insurance program. It creates stability for individuals and families by covering at least some of the cost of medical care and providing financial protection in the event of unexpected illness or injury.

Although your employee health insurance is a common business expense, deciding how to fund a plan—or knowing which type of plan is best for your organization—can be confusing. Typically in North Bay, the employer will purchase a fully insured health plan. While these plans are common and seem easy, they can also come with pitfalls. Let’s talk about them:

Fully insured health plans are a type of health insurance where the insurance company assumes all of the financial risk of providing coverage to policyholders. This means that aside from things like deductibles and co-pays, the insurance company — not the employer offering the plan — is responsible for paying all claims and managing the cost of medical care.

Here are the disadvantages:

Limited flexibility

One of the main pitfalls of fully insured health plans is that they offer limited flexibility for employers. The insurance company determines the design of the plan, which often changes from year to year. They determine the premiums paid by the employer or the employee. Premiums usually change every year. The insurance company also chooses the provider’s network. In other words, they dictate which providers, hospitals, labs and even pharmacies members can use when seeking services. This is very limiting.

Higher costs

Fully insured health plans negotiate rates directly with providers. These rates can be much higher than what the “cash price” is for other customer groups. This disparity can make it difficult for individuals and families to afford health care, especially if they have chronic conditions that require ongoing treatment.

I (Andrew) ran into this a few years ago when I sought care for a family member. Unfortunately, in addition to dealing with a very stressful situation, I was faced with assessing the reality of finances during my personal crisis. It’s not ideal. The contract discount for my insurance was 36%. However, I found that the cash discount is 55%. In this common scenario, the 19% difference was worth paying cash for the care and I really didn’t use my insurance – I paid out of pocket.

Limited control

Fully insured plans give members limited control over their health care. Insurance companies may require prior authorization for certain treatments or medications, which can delay care and limit treatment options. Likewise, insurance companies may also deny coverage for certain treatments or procedures, even if they are deemed medically necessary by a medical professional. Provider network issues are a more common concern we often see in the North Bay. Locally, many employer-sponsored health plans are HMOs. By design, HMOs further limit the network of providers a member can access. In a provider-limited network, access can be a particular problem if the member needs care from an out-of-network specialist. This often results in higher out-of-pocket costs for members.

Limited coverage

Fully insured plans typically limit coverage for certain treatments and services. When we talk to employers over the last few years, we are repeatedly asked about mental health services. Often the network of mental health providers is extremely small and appointments are not readily available. So members are forced to seek out-of-network providers who will have higher out-of-pocket costs, making it harder for people to access the care they need.

Lack of pricing transparency

These plans lack clarity about provider pricing arrangements. Members who are required to pay a coinsurance, which is a percentage of the total charge, may not know the cost of the service in advance. This leads to surprising bills. Unlike fully insured plans, employers with self-funded arrangements can negotiate directly with a provider for services and procedures. These negotiated rates are often below the negotiated rate that providers have with fully insured companies.

While fully insured health plans may seem like an easy and—dare we say it—appealing option, they have disadvantages that are not helpful. As we look to the future of health care in the North Bay, we see self-funded employer health insurance as a more viable option for employers.

Self-insurance may not be the “be all and end all” for every situation. But self-insured plans can offer more flexibility, control, transparency, as well as expand the coverage available, and this should be considered. Employee health insurance is a huge investment, choosing the right funding structure for your business will result in the best outcome for your organization and employees.

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