How you can buy health insurance like you shop at Costco

Yes, you can buy health insurance like you shop at Costco

UPDATE: We filmed this video a bit ago. At the time we made this, unemployment was quite low. That the unemployment rate is significantly higher and the economy is uncertain is even more reason to contain your costs.

Not just because you want to keep those people, but because you want to keep those people even though your cash burn rate is higher than normal, you may not have the work backlog you did two months ago, your marketplace is a bit uncertain and you don’t have a lot of options for how to keep those people.


Are you self-funding your workers’ compensation program through a group captive? Did you know that you could do the same thing with your health insurance plan? Building your health plan like this allows you to do the same thing you do with your workers comp program. Spread the risk, control your costs, and buy in bulk. Just like shopping at Costco, you get high quality products at the best possible price.

With workers’ compensation, there are a several employers that join with a like-minded group, with similar risk tolerance, to self insure their worker’s comp risk pool. The group can take advantage of the same benefits, maintain control and predictability, contain your costs, and share the risk. So, why wouldn’t you do this when it comes to your health insurance plan?


Captive Coalitions

Captives coalition work by pooling together. Each employer chooses the amount of risk that they will absorb and then share risk among the group, or, the captive layer. Then, if there’s any excess risk, that’s taken care of by a reinsurer. In other words, if a claim is $1,000 and your part of the risk is $500, then you absorb the $500, and the group absorbs the next $250 of the risk. Then, anything that goes over that is sent to the reinsurer. You pay small claims yourself; and, the middle layer (captive layer) is spread amongst the whole group. Even if you are having a bad claims year, you are protected by the other people in your coalition that are not having a bad claim year.

Larger claims such as cancer diagnoses or neonatal care, that surpass the middle or captive layer, go to the reinsurer and everyone is protected. If you are interested in this kind of arrangement, it’s imperative that you are with a group of like-minded employers to avoid dirty pools. Also, health insurance benefits are a little bit more complex than workers’ comp and the philosophical alignment is even more crucial.

If you are an employer that wants to control your costs, make them predictable, repeatable, plannable year over year, and offer something of high value to your employees, and you wan to spread the risk a bit further that just your own group, then you need to be with a group of employers that agree with that and want to do the same thing. Like minded employers are imperative so that the costs can be kept as low as possible.

For example, is everyone paying the same (e.g. $36,000) for a knee replacement. You don’t want one employer paying $36,000 and another paying $48,000, and another paying $69,000. Another thing that you will need to look out for is the cost of medications. You will want to make sure that everyone is paying the lowest possible cost for the highest quality prescriptions. You won’t want someone paying $800, $1,000, $1,500 or even $5,000 for a medication that should really only cost $200-$300.


Repricing Medical Claim Strategies

It doesn’t matter if your pool members are in the same industry, or in the same geographic area. What does matter, however, is that the coalition is set up to use repricing medical claim strategies that you agree with. It’s crucial that the PBM is transparent and that you’re using an alternate sourcing program for prescriptions.

This way, everyone in the pool is using the same cost containment tools and you can lower your costs as a group, making the already inherent advantages of spreading the risk even more effective. It means that if you have a medication that you should be paying $1,000 for, everyone in the pool is paying $1,000 for it.

Just because you are in a pool, however, doesn’t mean you shouldn’t audit the plan, just as you should be doing in your current plan. You will have audit provisions that you should examine so you understand what is going on.


What If I Am Fully Insured?

For those employers that are fully insured, don’t think information doesn’t pertain to you; because, it does. Did you know that when you’re fully insured, you’re already in a pool? That’s right, you just have no control over the plan, such as what services should cost, whether or not they are delivered by a high quality provider, or most unfair of all, if less money is spent than planned, someone else keeps that money, not you.

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