How to Navigate Risk When Leveraging a Self-Funded Health Insurance Strategy

There is far more to consider when purchasing medical stop-loss insurance than just finding the lowest rate, something many employers who self-fund their employee health insurance benefits discovered last year due to COVID-19.

Of course, there’s nothing wrong with getting a great deal, but pandemic-induced service disruptions exposed how basing medical stop-loss purchases primarily on rates can misfire. 

An employer’s decision to self-fund employee health insurance is typically driven by skyrocketing premiums in the conventional group health insurance market, which are linked to rising medical costs at large. This strategy increases transparency and control over expenses and enables the ability to customize insurance coverage to their employee’s requirements. At the bottom, they’re often seeking the assurance that medical stop-loss insurance will absorb the cost of large individual and aggregated claims. 

Insurance underwriters and claims professionals found themselves in a perfect-storm situation when they began working from home during the first few months of the COVID-19 pandemic. During a time of great uncertainty and financial anguish, policyholders were left waiting for insurers who had failed to adequately equip their claims personnel with the technology necessary to handle the sudden surge in claims. 

Lessons have been learned from this experience. Among other things, employers need to take into consideration the sophistication and scope of an insurer’s technical infrastructure and experience in responding to intense disruptions and large claim influxes, as well as the overall maturation of its risk-resilience structure. What is the insurer’s track record regarding prior claims management? Have they proven the ability to fulfill their obligations through previous instances of intense uncertainty? Having answers to these questions is critical when evaluating self-funded insurance plans. An insurer’s ability to respond to challenging circumstances can result in second and third-order consequences, hampering the employer’s cash flow and capacity to provide quality employee benefits, ultimately impacting their ability to recruit and retain talent in today’s highly competitive job market. 

Once the purview of investors and regulators, environmental, social, and governance (ESG) disclosures are becoming ever more critical to customers, employees, and to communities in general. Therefore, it would be imprudent for an employer to fail to consider an insurer’s commitment to the factors that contribute to these disclosures. 

Many companies already provide ESG disclosures, however, there is a growing expectation that the U.S. Securities and Exchange Commission (SEC) will begin mandating ESG reports in a manner similar to the requirements faced when operating in the European Union. 

Risk-resiliency and technical prowess are only two of the many factors that need to be weighed by employers when making insurance carrier selections. Other aspects to consider include an insurance carrier’s investment in innovation, which indicates a long-term commitment to their market and customers, as well as the strength of their company ethos and ideals. 

Here’s a shortlist of other factors to keep in mind:

• Does the insurance carrier have a record of maintaining resilience, dexterity, and authority despite unfavorable conditions?
• Are they committed to submitting ESG disclosures? 
• Does the insurance carrier have a credible record of making good on promises to pay all covered claims promptly and impartially? 
• Are they prepared to maintain compliance with legal and regulatory requirements through requisite data governance and security standards?
• Is it willing to provide risk management insights and ideas beyond the coverage included in the policy?
• Are there safeguards in place to minimize the impact of a potential ransomware attack?

As a means of capturing the insurer’s overall appraisal, we recommend employers obtain the Net Promotor Score (NPS) for any carrier they’re considering. This is an aggregate score that indicates how strongly former and current customers endorse the company to peers, and it functions as a comprehensive assessment of a company’s perceived value. 

Self-funding employee health insurance benefits will remain a promising strategy to help employers navigate a costly health insurance landscape, but there is far more to take into consideration than just finding the lowest rate. Employers need to be investigating factors like ESG disclosures, technical infrastructure, Net Promotor Scores, risk resiliency, etc. before rushing into any insurance policy decisions. As the ongoing COVID-19 pandemic has proven, you never know when the next claim surge is coming. Is your insurance provider ready for it?

Advantage Benefit Solutions specializes in helping organizations navigate the nuances of a self-funded strategy. Get in touch with us today to learn more.