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Gene Marks: Self-insuring could be health care option for small businesses

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Business Practices | Education | Insurance | Market Trends

Editor’s note: Repairer Driven News regularly features pieces by prolific national columnist Gene Marks. While despite not being directly related to collision repair, they should still prove valuable to the small-business owners and employees which make up much of the industry. In this column, originally published June 14 in the Washington Post, Marks explores how a small business could try self-insuring to provide health care.

By Gene Marks

The numbers are starting to come in, and it’s not looking good. Healthcare premiums for both individuals and businesses of all sizes are going up again in 2017.

By a lot.

This is the time of year when insurance companies in each state request approval from regulators to set premiums for the following years. And big increases are being requested. How big?

According to the Wall Street Journal, Humana is asking to raise rates by as much as 65 percent in Georgia and 38 percent in Pennsylvania. Providence Health wants to increase rates by almost 30 percent in Oregon. Insurers in Indiana, New Mexico and Maine have all requested rate increases north of 20 percent.

Let’s not go into the reasons why all this is happening — there are many. What’s more important is facing up to the fact that healthcare is going to cost my small business a lot more next year. And, like every other business owner in the country, I’m struggling with what to do. How can I keep this huge cost under control?

One advantage of being a small business is that I could drop my insurance altogether and because I have less than 50 full-time equivalent people I wouldn’t even be subject to a penalty. But, as other employers will agree, I’ve found that this option would only make it harder for me to attract good people in this time of low unemployment and increased competition from big companies. So, like many small business owners, I buy a high-deductible, high-out-of-pocket “bronze” plan and push as much of the cost as possible to my people. Unfortunately, this is still insurance, and I’m also paying for the insurance companies’ increased costs, taxes and profits. Is there another option for a small business? There may be.

According to the Department of Health and Human Services, approximately 82 percent of companies with more than 500 employees self-insure their healthcare. This is a big-company thing. The number drops considerably among employers with less employees. But the option is becoming increasingly popular among small companies like mine.

Self-insurance works like this. You pay a premium every year into a pool with other employers so everyone can spread and share the risk for everything else. The bigger the pool, the more diluted the risk. Throughout the year, your employees submit their claims to a third-party administrator you hire. You also buy “stop-loss” coverage that insures you against any big exposure. At the end of the year, and based on all the claims submitted, the members of the group either get money back or are required to pay in more.

Yes, you’re still exposed to paying out more if more expenses are submitted. And yes, you’re still paying more for health expenses because doctors, hospitals and pharmaceutical companies are all facing higher costs themselves and are passing these costs onto their customers and patients. But when you self-insure, you have less regulatory oversight from the Affordable Care Act and can pick and choose what coverages you want to offer your employees. And you’re not paying a higher amount to compensate an insurance company to take on the risk (and the additional taxes they’re being charged), so, if things are managed correctly, your overall healthcare costs could be much lower than the similar guy down the street with the traditional group plan.

This is the case for Vincent C. Hvizda, chief executive of Admiral Products in Cleveland. Hvizda decided to self-insure his 38-person company three years ago. And the cost savings have been significant. According to Hvizda, if he weren’t self-insuring, he would’ve faced premium increases in excess of 35 percent last year alone. Instead, he only incurred an 8 percent increase. Hvizda pays about $400,000 in healthcare premiums.

“The decision to self-insure has been the right one for my small company,” he told me. Hvizda uses a local broker (Roundstone Insurance) and a national company owned by Aetna (Meritain Health) as his third-party administrator. It also pays for nursing visits, blood tests and seminars for his employees and strictly enforces non-smoking and other proactive policies to encourage healthy living.

Like Hvizda, this option will only work if you’re confident that your employee health history is good (Easier said than done, because unfortunately, may insurance companies have been less than helpful providing this data to their customers). And it will only work if you have someone internally who takes responsibility for your self-insured plan — setting up agreements with local doctors or urgent care centers, creating rules and policies, negotiating deals with the local pharmacies, supervising the administrators, watching the costs.

Even for a small business with a few dozen employees, this could take a significant amount of time. Research needs to be performed. And the right broker — someone with self-insurance experience — needs to be hired. This need for resources and oversight is why (according to the same HHS study mentioned above) less than 5 percent of businesses with less than 50 people self-insure.

Oh, and one other thing: Small businesses that self-insure should always make sure they’re in a financial position to write a big check in case something unexpected happens. It hasn’t happened yet to Hvizda. But he’s a realist. And if the program ever became too expensive, he’s prepared to switch back to regular group coverage. In the meantime, he’s happy.

“Given the fact that we’re 38 people and going into the fourth year I think it’s a good program,” he says. “If the big guys are already in it, why not us?”

This column originally appeared in the Washington Post here.

Columnist Gene Marks. (Provided by the Marks Group)

Gene Marks is a columnist, author, and small business owner. http://genemarks.com. Gene writes every day on business, politics and public policy for the Washington Post and weekly for Forbes, Inc. Magazine, Entrepreneur and the Huffington Post.  Marks has written 5 books on business management, specifically geared towards small and medium-sized companies. His most recent is “The Manufacturer’s Book of Lists.”  Nationally, Marks appears on Fox News, MSNBC and CNBC discussing matters affecting the business community. Through his keynotes and breakout sessions, Marks helps business owners, executives and managers understand the political, economic and technological trends that will affect their companies so they can make profitable decisions. Marks owns and operates the Marks Group PC, a highly successful 10-person firm that provides technology and consulting services to small and medium-sized businesses. Prior to starting the Marks Group PC, Marks, a Certified Public Accountant, spent nine years in the entrepreneurial services arm of the international consulting firm KPMG in Philadelphia, where he was a senior manager.

More information:

“Gene Marks: Here’s how one small business is controlling its healthcare costs.”

Washington Post, June 14, 2016

Images:

A Community Chest card from a 1960s-era “Monopoly” game. In a sign that health care costs were apparently always high, $50 in doctor’s fees today was $864 in 1936, when the game was patented, and worth $405 in 1960. (Pamela Moore/iStock)

Columnist Gene Marks. (Provided by the Marks Group)