Get a grip on insurance premiums with self-funded plans
In 2003, grocery workers around the country watched as 59,000 United Food & Commercial Workers members in southern California went on strike for nearly 20 weeks in reaction to employer-proposed contracts that would have grocery workers paying, for the first time ever, a portion of their health insurance premiums. In the end, 86 percent of striking workers voted to accept a proposal that would result in individual workers paying $5 a week and families paying $10–15 per week for health insurance premiums.
While these amounts may have seemed small to employees already footing most of the bill for their health insurance, it sent a message to union grocery workers that the days of complete employer coverage for health insurance were gone. The grocery industry, long known for its very generous health insurance package, began shifting insurance costs to employees. And they aren’t the only ones. The cost of health insurance has been going up for everyone, even for us here at the Community Food Co-op (CFC) in Bellingham, Washington.
However, the Community Food Co-op has been able to maintain health benefits for staff and dependents and even lower the business’s health insurance spending. In fact in 2005 we came in under budget on health insurance costs. We achieved this gain partly through restructuring our benefits. We made the difficult decision to no longer pay for spouse or domestic partner coverage and to focus on providing employees and their dependent children with affordable, wide-range health care coverage. But what really helped us get a control on health care costs, and to change from reacting to health insurance costs to managing our health insurance plan, was adopting a self-funded health insurance plan.
We came upon the idea more by accident than deliberately. We had recently hired an employee for our meat department who was a former employee of Coastal Administration Services (CAS), a third party administrator for self-funded health insurance plans. During his new worker orientation the new employee told me about CAS and the idea of a self-funded plan. I thought it sounded interesting but put the idea on the back burner. Later that year, when CFC received an estimate of a 30 percent increase to our insurance premiums, the management team thought we needed to look at some other options.
Our general manager, Jim Ashby, and I met with Debbie Harrington, president of CAS, to learn more about self-funded plans and how they, as a third-party administrator, could help us set up and manage a self-funded plan. Debbie explained how it worked and gave us a list of other businesses to call for references. We quickly learned that with a self-funded plan we could move from merely reacting to rising health insurance premiums to actively managing our health insurance plan.
How it works
Instead of paying insurance premiums, the co-op funds a savings account to establish reserves for future claims. Based on our maximum liability from the invoice issued by our administrator, CAS, we estimate what our monthly claims exposure will cost and fund accordingly. All claims are sent to CAS, and they process and pay claims from our account.
Most claims are processed within two weeks of receipt, something virtually unheard of in a traditional insurance plan. We also have three reinsurance plans through CAS that give us coverage for any claims that exceed our limits on individual claims or on our monthly and yearly group limits. The reinsurance plans lower the risks to the co-op and gives us coverage for unexpected high cost claims.
One of the most beneficial things about a self-funded plan is that you can see where your money goes. CAS provides us with monthly reports that show usage, which enables us to detect trends and adjust our coverage accordingly. CFC chooses not to look at claims based on individual employees, protecting employee privacy. But we can look at which health care services our employees are using—valuable information in designing a plan and something we could never get with a traditional insurance plan. The fact that a self-funded plan allows you to create your own tailor-made plan based on the needs of your employees saves money. You are not paying insurance premiums for what your employees are not using.
Before we could involve staff in the creation of the plan we needed to provide some education. Probably one of the most important things we did was to try to get employees to see health insurance as part of their wages. It was obvious to many employees that health insurance was a part of their overall compensation but we found that many younger employees take it for granted that employers provide health insurance. We needed to show them what health insurance cost the business and what it meant to them individually.
For the first year we created a plan that would, for the most part, provide all the same services at the same costs as our old traditional insurance plan had the year before. We began to educate staff on the concept of self-insurance and worked out any bugs that came up. The staff at CAS provided meetings with employees on-site to answer questions and to explain the benefits of a self-funded plan. They even offered an incentive plan that would pay employees 10 percent up to $500 of the amount of any billing error the employee discovered in their medical bills. This got employees really looking at his or her health care bill and taking ownership for the plan.
In the second year, we included our employees in designing a health care plan that best met their needs. We conducted surveys and had focus groups to determine what our employees most wanted from a health insurance plan. We asked employees to rank in order of importance different aspects of the plan and were very surprised to find that some of the assumptions we made were incorrect. For example, we underestimated the importance of a low co-pay for prescription drugs. As a result, we made sure to build in incentives for employees to request generic drugs whenever possible but still kept co-pays affordable.
After seeing our success with self-funded insurance, other food co-ops have made the switch as well. In 2004, Skagit Valley Co-op in Mt. Vernon, Washington, called CAS and found out that a self-funded plan would work for them. According to personnel coordinator Bev Faxon, CAS has helped Skagit improve its health insurance benefits and customize a plan that its employees really like. “We’ve found CAS really easy to work with,” says Faxon, “and the self-funded plan has allowed us to emphasize preventive alternative care that, we believe, saves money in the long run.” Other co-ops that have recently gone to self-funded plans through CAS are Olympia Food Co-op in Olympia, Washington, and Community food Co-op in Bozeman, Montana.
Giving employees some say in the how their health insurance money is allocated goes a long way in getting them behind the plan and taking ownership. While a self-funded plan might not work for every business, it has worked very well for Community Food Co-op. We continue to reduce health insurance costs and still provide excellent coverage for our employees. Perhaps a self-funded plan might help you create the health care plan that works for your organization.
Deborah Craig is the human resources manager at Community Food Co-op in Bellingham, Washington ([email protected]).