Dealers may want to consider self-insurance option amid Obamacare uncertainty
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Dealers may want to consider self-insurance amid Obamacare uncertainty
Self insurance, or self funding, is not a new concept, as many larger organizations have been using the approach for decades. At its most fundamental level, self insurance means that the organization or company has decided to assume the risks associated with insuring employees instead of having a carrier assume the risk.
During a “good year” in which the employee base remained relatively healthy, the company could realize a “profit” from the premiums paid into the program, because the healthcare costs were not as great as the premiums collected. Contrarily, the organization would be on the hook to pay for additional healthcare costs associated with a “bad year,” when employees were not as healthy and some suffered illnesses and injuries that quickly caused healthcare bills to skyrocket.
Given this risk-reward reality, the self-insurance option traditionally was open to very large organizations that could spread the risk across hundreds of employees.
“With the old product lines that they had … that exposure was there—no question about it—and you might have to carry that exposure over,” Meyer said. “It used to be [with] self funding and partial self funding, you really didn’t strongly consider it until you got to about 75-100 employees. Going back to the mid-90s, it was probably 250 employees.”
But the need to have such large numbers was removed as the insurance industry developed products that allowed the organization to cap the amount of exposure it would have during a bad year, Meyer said.
You don’t have to have 100 lives or 50 employees anymore; you can go down to two lives now,” he said. “It’s a product that’s called Aggregate Only. They charge a flat premium–$300 for a single [employee] and $800 for a family, or whatever the numbers may be—and, if your claims are less than a certain percentage, you get a refund back. And, if you claims were horrendous, you can never be charged more than your flat premium.”
One company that has benefited from a self-insurance program is Wireless USA, which is one of the largest radio dealers in the country and one of Meyer’s clients. By opting for self funding, the company was able to avoid the cycle of seemingly inevitable double-digit increases in healthcare costs every year, according to Robert Taylor, president of Wireless USA.
“We were looking at health-insurance costs increasing by as much 10% in a single year.,” Taylor said during an interview with IWCE’s Urgent Communications. “We went to the self-insured process, and we have a third-party insurance company that comes in and insures us, if any individual exceeds $35,000 in a single year or if the aggregate group exceeds some number, like $450,000 or $500,000.
“But other than that, we literally write a check and pay the bill. And, in the 10-12 years we’ve been doing this, we’ve never had more than a 3% increase in any one year. Now, is that because of the mix of our employees or the age of the employees or they take better care of themselves or we’ve just been lucky? I don’t know. I can’t say what the answer is, but we’ve been pretty fortunate here.”