As companies look for ways to reduce expenses, many choose the option to become self-insured. There is a large cost savings that can be achieved, but there are other issues that need to be considered.
“You can’t just approach it blindly and let it run on autopilot,” says William H. Norris, partner with Moss Adams LLP. “You have to be actively involved and engaged in monitoring how your claims experience is progressing.”
One risk an employer faces when becoming self-insured is the fallout from a claim filed by a dependent that is not eligible to receive benefits. Industry experts estimate as many as 12 percent of the dependents in any given company are ineligible.
“You’re an employer with 2,000 employees and 3,000 dependents,” Norris says. “If you take 5 percent of those 2,000 dependents, that’s 100 dependents that are ineligible. The average claims equivalent expense per dependent is $3,000 to $4,000. That’s a $400,000 savings because you identified 100 dependents that should not have been receiving services.”
Because of this potential, it is imperative that organizations periodically perform dependent eligibility audits to ensure that only those dependents who are eligible are able to receive plan benefits.
Smart Business spoke with Norris about how to protect your financial interests when you make the move to become self-insured.
How can being self-insured create problems?
The employer who is self-insured has a fiduciary responsibility to monitor expenses that are borne by the employees.
Most employers , however, rely on self-reported results provided by the administrator. These may not represent an accurate and objective picture of an administrator’s performance. How can you ensure strong performance by your Third Party Administrator (TPA)?
Employers can request and receive performance guarantees in which administrators agree to process claims with a predetermined level of accuracy and accountability. Your administrator may offer update reports – but they may not be objective – and may not necessarily consider the performance measures that are important to your organization.
You can also work with your financial consultants or accounting firm to develop a report card that presents all the data about how your plan, and your administrator, is performing.
Check it against the performance guarantee, but also against the norms and industry standards to see how your administrator matches up. Having a third party audit your claims payments will give you objective criteria from which to assess the performance of your administrator. Or it can be used as ammunition to go back to the administrator and press them on performance.
Why are these audits necessary?
Paying medical claims is a highly complicated business fraught with errors.
Combine this with the significant changes occurring in the health care industry, and the heavy amount of regulation present, and there is the significant potential that claims being paid on your behalf are being processed incorrectly. Also, TPA’s and payers can get more focused on the timeliness of claims payments, which often takes priority over accuracy.
Self-insured employers need to know the tools and tactics available to optimize the outcomes of your self-insured strategy. At the end of the day, you need to approach the use of administrators as you would any other vendor relationship and take steps to provide oversight and instill accountability.
How can accounting firms provide support?
They can look at why you are entertaining this notion and what trends you’re seeing in your medical claims expenses.
Do you want to perform analytics on your membership to customize your benefits structure? Has a spike in claims led you to want more control over your health care costs? If so, that’s a key reason to become self-insured.
It allows you to have a better handle on the needs of your employees – providing you with an opportunity to customize their benefit packages while managing costs. Meet with a benefits consultant to develop the cost/benefit analysis you need to make a good business decision.
Once you become self-insured, your accounting firm can offer expertise to assess the performance of your TPA and realize the benefits of the self-insured model. ●
Insights Accounting & Consulting is brought to you by Moss Adams LLP
