What’s Better for My Business: A Self-Funded or Traditional Health Insurance Plan?

Hi Bud,
I have a small business with 11 employees, and would love to introduce a healthcare plan for recruiting and retaining talent. But, the traditional type plans are just too expensive and we can’t afford them.  I priced out the self-insured option. This would be at a price I could work with, except we have 1 employee who is a major health risk and therefore the self-insured plan won’t work. Is it possible to incentivize this one employee to waive the self-insured plan so I can implement it for everyone else (and the one employee will get some benefit)?
Regards,
Price & Employee Concerned Owner

Dear P.E.C.O.

,
Short answer: I would not advise going down the road towards separating out the Employee with health issues. The Affordable Care Act frowns on incentivizing someone to stay off a company sponsored plan, not to mention it’s dangerous from a legal standpoint should that scenario ever play out in court.  
Having said that, let’s break down the difference between self-funded and traditional plans.
Both types of plans have an actuarial basis, meaning both have a value based upon what typical coverages will be covered and to what percentage. In order to take advantage of a self-funded plan where you, as business owner, share the risk for a percent of the claims and, if claims are low, also share in the rewards of reduced total outlay of funds, well — you need to have a much larger number of employees to spread the risk to. Excluding your medically challenged employee, if one of your other employees or dependents are in a debilitating accident or attract a dreaded disease, you don’t have a broad enough base of premium to spread that risk across — and you could wind up paying more.
It’s also important to note that the plan designs of self-funded and traditional plans are virtually the same. Theoretically, this also means the cost of both types of plans are identical. What’s different is the funding mechanism. How much risk you assume on the self-funded plan lowers the premium, versus a fully-insured plan where the Insurance company assumes all the risk.
What’s covered and what’s not really doesn’t change just because a plan is self-funded. Those things are based upon the plan design. So, maybe you’re looking at traditional plans that are too rich in benefits for your budget. If you’re working with a local broker, ask them for some plan designs that offer first dollar coverage but have higher copays, deductibles and out-of-pocket maximums. This should lower your premium outlay. You might also have your broker check HSA qualified High Deductible Health Plans with low deductibles. With your permission, I would be happy to refer you an advisor with Zenefits who could take in more facts about your employee demographics and shop the literally hundreds of plans available in North Carolina to find the right one for you.
To sum up, I don’t advise leaving your employee off the plan and I would advise you to seek a traditional plan that meet your needs. By the way, rates for your size group are set by the North Carolina Department of Insurance and are fixed, so no one broker can get you better or lower rates for the same plan than another broker.
Thanks for the question, and good luck!
Bud

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