An employer-paid health insurance concept is spreading through Delaware that aims to help small- and mid-sized businesses (SMBs) reduce health care costs and eventually transition to self-insurance plans.
Michael Geary, principal in the Wilmington-based insurance consulting firm Synurture, said that Participating Funding Arrangement™ insurance (PFA) is an old concept that has taken root over the last decade due to IRS support.
“PFA employee health care plans offer the greatest leverage and benefit to companies with 30 to 300 insured lives who have a covered employee population whose lower benefit use will cost the insurer significantly less than the premium the employer is currently paying,” Geary said.
Geary said firms in the middle range can sometimes see savings in the range of 5-20 percent of their employee health costs.
So-called “self-insurance” has become popular with corporate and even family-owned businesses in the 500-employee range or higher. Such employers don’t buy the risk pool from health care insurers, except for extraordinary events like a $1 million baby due to a NICU (neonatal intensive care unit) expense or long-term cancer or heart treatments, all of which can be covered by “reinsurance plans.”
With self-insurance, companies budget payment for the amount of health care claims that employees have historically made. They use the health care insurer for its medical network and claims administration, rather than risk pool.
Ideally the model lowers the overall cost of their health care since employers often “opt-out” of the more costly risk pool, where prudent insurers have to budget for higher claims experience. And it rewards such employers for progressive steps, such as wellness programs, including fitness and nutrition, preventive benefits, etc., all of which reduce their claims costs.
Many, if not most, employers start looking at self-insurance as soon as it makes financial sense for them, typically beyond the 250-employee to 300-employee head count, and certainly by the 500-employee head count.
“I’ve been in Delaware now for over a decade,” said Geary. “I’m not certain who else might offer it, if any, but I’m happy to help introduce it into this market to progressive SMB employers who feel they have an employee population that would make it a ‘smart buy’.”
The term Participating Funding Arrangement™ was just trademarked in 2016 by Comprehensive Benefit Administrators, a Massachusetts company whose subsidiary RSI Administrators has built a specialty niche in administering the plan, and works with Geary.
On the other hand, Geary said, the beauty of the concept is that it can be piggy-backed onto the traditional health insurance plans, like Highmark and Blue Cross Blue Shield, Aetna and most of the rest. “As a result, a participating employer does not ‘give up’ its preferred supplier for some ‘no-name insurance company’ that no one knows,” Geary added.
“Highlights of it are average savings of 5-15 percent off premium costs, integrated with brand name insurance carriers including your current carrier, and flexibility in plan design options,” Geary said. “It’s Section 125 of the US Internal Revenue Code that gives the plan its attractiveness. More than 400 employers use this, and it has never under-performed the fully-insured plan.”
Asked why other firms may not be offering or widely promoting it, Geary pointed to two factors – little or no experience with it, which he enjoys from his New England roots, and the prospective reduction in agency commission from proposing a plan that may be 20 percent cheaper.