Can we combine companies to purchase insurance at cheaper rates?
This is a recurring question because everyone has a common goal to spend less on their health insurance. Whether the question is in regards to a Co-Op, Association Plan, or just about the size of a purchasing pool necessary to save money, the answer is yes. Let’s dive into this approach to saving money and setting you up for a pathway to success. And while you may read some of the cautionary advice as a barrier, the reality is that it is possible, and it is certainly worth looking into. To accomplish this goal, you will need to understand the options and barriers that come with it.
Grouping Individuals Together
First up, let’s talk about the one scenario where it is possible, but practically improbable. If you want to band together an unassociated group of individuals outside of either an employer group or a trade association, you are asking a question that is essentially a non-starter in today’s landscape of insurance products and regulations. Most state regulations place obstacles or pure roadblocks to this style of group purchasing because of too many bad actors who have placed individuals and families in harms way through unscrupulous business practices and even worse marketing promises.
Okay, now that we got that one scenario out of the way, let’s talk about all the good stuff and all the fun answers.
The Medical Captive
Let’s start with smaller employers joining in with other small employers to purchase insurance together. This scenario is exactly the solution that a medical captive provides. A captive is an insurance product where those small employers join together and group-purchase insurance products at a price that they could not achieve on their own. Then, that same group of employers pool additional funds together to help each other cover the more manageable medical expenses. This allows for lower or no annual price increases from the insurance products they purchase since those insurance vendors won’t have any need for huge price increases each year.
The employers that band together historically have been employers in the same industry since they have similar commonalities in their workforce. But, in more recent years, the industry has shifted and now there are opportunities for common industry captives and medical captives that are multi-industry as well, which opens up more opportunities for more employers to explore this solution.
Now, when banding together in a captive, we need to be clear that this is a form of self-funded insurance. Those can be scary words for a company that has never chosen that pathway for its health insurance. Moving away from a fully insured health product is the only way that these savings can be achieved. For a company to have financial protections under a self-funded insurance arrangement, the company will purchase a stop-loss insurance product, sometimes called an “excess-risk” insurance product. This insurance product is responsible for claims above a certain threshold. In a medical captive arrangement, the captive purchases an extremely large deductible stop-loss policy, well above the risk tolerance of any single employer. The captive will then create a pool of money from all the member companies to create an intermediate level of protection they refer to as a "captive layer". This pool of money exists to cover funding all the claims that fall between the super high deductible stop-loss account and the amount they would feel comfortable with as a single employer. Collectively, they share the funds for that captive arrangement. And, if they can spend less on healthcare, they're able to keep their money in the captive or redistribute it to themselves as members of groups and have refunds.
By also buying a super large deductible stop-loss insurance plan, they are preventing the frequency that members of the group will require payment from stop-loss insurance. By not having any claims against the stop-loss due to that high deductible setting on the stop-loss, not only are they keeping the cost low on that insurance, but they protect the policy from increasing in price because the members are absorbing all of the claims during the risk level that the captive self-insures on.
As employers, by being able to join together with several other employers, they can protect themselves from having a bad year specific to their own company’s claims because they're balanced out by the other companies. Thus, the captive arrangement allows them to have some stability instead of being vulnerable to their company’s claims history causing rate increases year over year.
The last part of the medical captive that potentially exists is the suite of cost-containment solutions and access to plan administrators that a single employer might not have access to or knowledge of if they are self-insured on their own. Many of the available captives not only group-purchase their stop-loss insurance and share in the pool of dollars to manage their medical claims, but they can access programs to assist their members with chronic disease management, cancer therapy programs, pre-surgical physical therapy programs, and a better prescription purchasing solution that are typically only available to the employers of much larger companies. The employers often discuss their successes and failures with each other to learn from each other as they have a vested financial interest in collaborating.
Cost containment solutions are not exclusive to medical captives, but they typically have a plan manager who is dedicated to focusing on the performance of the plan and reducing healthcare costs for the entire captive in addition to anything the individual employer organization undertakes. This provides another set of eyes and management that can help the plan perform better than a standalone self-insured employer plan.
Association Health Plans
Association Health Plans have come and gone over and over again in the health insurance industry. The two most common examples of associations are industry trade associations and chamber of commerce sponsored health plans. In each of these scenarios, the employer can evaluate the option to join the health plan that the organizing group sponsors. These health plans fall under both Association Health Plan (AHP) regulations and Multi Employer Welfare Plan (MEWA) regulations at the state level.
An association health plan is a group of employers that are all members of an organization, and most are industry-specific. A few examples of association health plans in operation today are Medical Practice Association Plans and the American Council of Engineering Companies. The baseline rule for any new association plan is that the sponsoring organization provides a business function for the members other than the purchase of health insurance. When an organization already exists and provides one of these non-insurance services, it becomes a candidate to sponsor and become the organizer of an Association Health Plan.
In an association plan, the employers who purchase coverage through the association are typically rated individually for pricing, but only to the extent that it protects the association from taking on a high-risk group. Thus, the pricing on association plans is generally better than an employer purchasing a small group health plan on their own. Even if they are priced based on their specific company’s medical risk profile during that process, the association allows for some stability as long as the plan is managed such that the overall spending is less on medical claims than the single employer might on their own. Due to this need to control costs, most Association Health Plans include cost-containment programs that incentivize their members to use specific service providers at a substantially lower cost.
Due to the changing regulations from both a federal and a state level, the prevalence of these programs can drastically change every few years. Most of the current options available right now have been in existence for several years with very few newer associations being formed. However, that does not mean a new one cannot be formed as our firm does work on these arrangements.
Managing General Underwriters
Managing General Underwriters are not generally considered in the discussion of group purchasing health insurance. But, we’d argue they can be just as effective as a Medical Captive arrangement.
A Managing General Underwriter (MGU) is an intermediary company that sells stop-loss insurance to an employer group on behalf of an insurance company. To have the authority to price (underwrite) risk, they can offer price fluctuations on the insurance products they are authorized to sell, based not only on the historic and predictive risk of a single employer group, but they can adjust that pricing based on different health plan designs or included solutions. One such example would be a reduction in pricing due to the implementation of a Direct Primary Care arrangement.
This doesn’t seem much like employers grouping together for the purchase of cheaper insurance, but this is essentially an invisible aggregation of employers. The MGU is able to offer cheaper insurance to its members only as long as they don’t have to pay out high-cost claims beyond the authorized risk. Thus the MGU has a vested interest in helping an employer keep their costs lower and they help to offer insight and suggestions to their clients as a service to keep the medical costs lower and avoid expensive medical and prescription expenses.
Employers Doing It on Their Own
Employers don’t have to group together to save money.
There are many employers who customize their own health plans using a self-insured health plan platform. These employers focus on the cost of their chosen vendors and the costs that they pay on medical and pharmacy claims.
They don’t actually do it all on their own. They hire a plan administrator, a pharmacy benefit manager, and purchase their own stop-loss insurance to protect their assets. Then they can add the appropriate cost-containment solutions that help them reduce their expenses when a plan member incurs a medical claim.
Cost containment solutions can be anything from a reduced price on medications, virtual healthcare vendors, second opinion services, or vendors with exclusive surgical pricing at select locations. Based on the size of the employer building their own health plan, there may be limitations to the available cost containment vendors, but where there is a will there is a way and Generous Benefits can help navigate.
Takeaways
Regardless of the style of group purchasing, the goal of spending less on healthcare is typically the primary goal. Additionally, almost every employer exploring this option desires to have a higher quality option for their employees. The end result of purchasing lower-cost insurance in conjunction with a higher-quality plan is achievable through these various group purchasing options.
The pathway to achieve these results starts with a deeper understanding of each option and the choice to become an active participant in the acquisition of your company’s benefit plans versus picking a product from a spreadsheet.
