SANTA ROSA - As employers large and small continue to debate the ramifications of the massive health bill passed in late March, larger businesses are pondering whether self-funding may be an attractive alternative in place of paying an insurer to provide employee benefits, according to human resources experts.
Brenda Gilchrist, who heads The HR Matrix, said she and a HR roundtable are in the beginning phases of exploring the option as a means to reduce projected costs. Some companies are also considering re-tooling benefits packages for top-level executive positions, since they are often used as recruitment, she said.
“They’re trying to look at ways to see if it would be cost beneficial,” Ms. Gilchrist, who typically works with larger employers, said about self-funding models.
“What we’re saying is we’re going to start exploring cost benefit analysis, which includes self-funding.”
As a result of the bill, the Patient Protection and Affordable Care Act, companies with 50 or more employees that do not provide health insurance will face fines of up to $2,000 for every full-time employee.
But costs for providing insurance are increasing steadily on their own, according to Victor McKnight, an insurance broker for Sitzman Morris & Lavis in Santa Rosa, who is the past president of the North Coast Association of Health Underwriters. Mr. McKnight said he has traveled back and forth to Washington, D.C., several times to asses the impact of the new bill and how it will affect clients.
While much of the bill won’t take effect until 2014, Mr. McKnight said that with group premiums increasing by approximately 10 percent at the moment for employers, some may be exploring alternatives as implementation of the bill looms.
The current increase in premiums stems from rising utilization as the population gets older, he said, adding that some provisions of the health care bill that take effect in 2010 will likely boost premiums and renewals by an additional 5 percent.
“In the next few years, we will be looking at self-funding to avoid potential ramifications of the bill,” Mr. McKnight said. “But we’re still early in the process. In the coming months we’ll know a lot more.”
Mr. McKnight cautioned that much could change between now and 2014, which makes it difficult to assess the full impact.
“Right now we’re in the first quarter of a football game,” he said.
He also said that larger employers, with more than 1,000 employees, would ostensibly benefit the most from a self-funding arrangement.
A self-funded employer or plan reserves money in a trust fund, rather than pay for an insurance provider, and uses that money to process claims. With a self-funding mechanism, which many employers use for workers’ compensation funds, an employer can keep any profits derived from the employees to offset future expenses.
Mr. McKnight said a company could particularly benefit if it has few claims, but if there are a lot of claims, it could cost more.
Ms. Gilchrist said other options are being explored on benefits.
“The other thing we’re looking at is discretionary benefits practices, looking at other ways of how to manage the executive benefit plans,” Ms. Gilchrist said. “It’s basically going to go away, so we’re looking at ways to design other benefit strategies,” which help in the recruitment of top executive level jobs.
Some of the possibilities, she said, include deferred compensation or increased executive pay.
“If we have to make sure everyone is ‘even-steven,’ in some ways we’ll take that perk away and in place put in deferred compensation or something else to compensate,” she said, adding that such measures are necessary in order for large employers to attract top talent to executive positions.
