The Power of Two: 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 undeniably 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 a portion of medical care costs and provides financial protection in the event of unexpected illnesses or injuries.

Even though your employee health insurance is a common business expense, deciding how to fund a plan — or knowing what type of plan is best for your organization — can be confusing. Typically, in the North Bay, an 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 in which the insurance company assumes all financial risk for providing coverage to the policyholders. This means that aside from things like deductibles and copays, the insurance company — not the employer offering the plan — is responsible for paying all claims and managing the costs of medical care.

Here are the downsides:

Limited flexibility

One of the primary pitfalls of fully insured health plans is that they offer restricted flexibility for employers. The insurance company determines the plan design which often changes from year to year. They determine the premiums paid by the employer or the employee. Premiums generally do change annually. The insurance company also chooses the provider 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 groups of patrons. This discrepancy can make it difficult for individuals and families to afford healthcare, especially if they have chronic medical conditions which require ongoing treatment.

I (Andrew) faced this myself several years ago when seeking care for a family member. Unfortunately, in addition to dealing with a very stressful situation I was faced with evaluating the reality of financials during my personal crisis. Not ideal. The contractual discount for my insurance was 36%. However, I discovered that the discount for paying with cash was 55%. In this common scenario, the 19% difference made it worth it to pay cash for the care, and I indeed did not use my insurance – I paid out-of-pocket.

Limited control

Fully insured plans give members limited control over their healthcare. Insurance companies may require prior authorization for certain treatments or medications, which can delay care and limit treatment options. Likewise, insurance companies can also deny coverage for certain treatments or procedures, even if they are deemed medically necessary by a healthcare practitioner. 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 restrict the network of providers a member can access. With a restricted provider network, access can be a particular problem if a member needs care from a specialist who is not in the network. This frequently results in higher out-of-pocket costs for members.

Limited coverage

Fully insured plans commonly limit coverage for certain treatments and services. In speaking to employers over the past few years, we are repeatedly asked about mental health services. Frequently, the mental health provider network is extremely small, and appointments are not readily available. So, members are forced to look for out-of-network providers, which will have a higher out-of-pocket cost, making it difficult for individuals to access the care they need.

Lack of pricing transparency

These plans lack clarity around provider pricing arrangements. Members who are required to pay coinsurance, which is a percentage of the overall charge, may not know the cost of the service upfront. This results in surprise bills. In contrast to 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 contracted rate the providers have with fully insured insurance companies.

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

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