Credit Unions Look to Cut Health Care Costs
This fall, credit unions will be getting their health insurance renewal notices, which will undoubtedly come with yet another premium rate increase.
Most credit union executives will simply accept the rate hikes because they have become accustomed to them and know health insurance is a necessary benefit to retaining and attracting productive employees.
But more credit unions are discovering they no longer have to accept the inevitable health insurance increases that insidiously erode their bottom lines year after year.
For the $1.2 billion TwinStar Credit Union in Lacey, Wash., its fully insured health care costs became unsustainable more than six years ago when employees were paying $1,000 or more to insure their families.
“So if you’re a teller making $30,000 a year, you can't really afford the $12,000 a year in health insurance, and that's pretty common among credit unions,” John Harris, president of CU Benefits Alliance in Beaverton, Ore., said. The CUSO, majority owned by the $677 million Maps Credit Union in Salem, Ore., exclusively serves credit unions and their employee benefit plan needs.
One of the CUSO's offerings that is helping some credit unions save on health care costs is a partially self-insurance plan.
TwinStar, for example, saved $3.4 million from 2012 to 2016, according to Chief Administrative Officer Mary Beth Spuck.
Spuck calculated the savings by comparing the actual total cost the credit union paid for its partially self-insurance plan against the cost the credit union would have paid had it remained with a fully insured health insurance plan.
“By going to a partially self-insured plan, we have reduced the cost of employee out-of-pocket premiums, which has helped significantly,” she said. “We pay 100% of employee coverage and employees pay 100% of dependent coverage. My goal has been to significantly reduce [health care costs] for employees and it's down from 2012. The average monthly premium is just under $664 [a month for a family plan], whereas under a [fully-insured] group plan, they would be paying $1,778 [a month] for that same family coverage.”
Because of the self-insurance plan flexibilities, the credit union also cut the premium cost for employees who have only one child, a benefit that would not be available in a fully insured plan, Spuck noted.
Moreover, she also said they reduced the cost of health care insurance without cutting any of its benefits. Instead, the credit union added benefits through its self-insurance plan. For example, a new benefit is massage therapy, which is part of the plan's physical therapy coverage.
Reducing the cost of health insurance premiums without reducing the benefits is something credit union executives find hard to believe, Harris said, only because they have become used to seeing health insurance costs rise and the benefits decline over the years.
“Partially self-insuring or partially self-funding – those are interchangeable terms – is what we talk a lot about with our clients because we really believe that's the way you’re going to get control of the expense curve from escalating,” Harris said. However, he added that a self-funding plan is not for every credit union for different reasons, and it requires a lot of due diligence, evaluation and internal discussions of all available options.
The most traditional option is a fully insured plan, which means a credit union pays its health insurance premiums to an insurance carrier that manages the risk and pays for approved employee claims.
In a partially insured plan, credit unions pay for claims up to a certain cap amount. Anything above that cap amount is paid for by a health insurance company through a stop loss option for individual employees and employees as a group. Essentially, the credit union and the health insurance company are sharing the risks of the cost of the claims.
For example, if your credit union has a $50,000 stop loss provision per employee in your self-insurance plan and you received a $150,000 claim, the credit union is only responsible for paying $50,000, while the insurance company is responsible for paying the $100,000 balance. An aggregate stop loss provision also works the same way, so if you have five employees who each make a claim for $100,000, the credit union is responsible for paying $250,000 and the insurance company is responsible for paying $250,000.
In any five-year window of time, on average, a credit union is going to have two years in which it will have higher than expected health insurance claims. However, in three out of those five years, a credit union will have expected or lower than expected health care claims.
“We’ve seen this [pattern] forever, that's just the way it happens,” Harris said. “So what you’re doing in a partially insured plan is you are leveling out those increases when you have bad years [with the good years]. And you’re not going to have to pay more in premiums because it's highly unlikely that you are going to get three bad years [of higher than expected claims] in a row.”
Because of this pattern, Harris said, credit unions that manage partially self-insured plans are historically going to pay less over time than fully insured plans.
Harry Nelson, founder and managing partner of Nelson Haridman, a healthcare law firm in Los Angeles, said there has been significant growth of partially self-insurance health care plans and an enormous expansion of different types of options for employers to self-insure.
Nelson, who recently co-authored a book, “From Obamacare to Trumpcare: Why You Should Care,” said the economics for a self-insurance option begin to make sense for businesses with at least 150 employees, but some states have laws that restrict or forbid small companies from self-insuring.
According to a 2014 employer health benefits survey by the Kaiser Family Foundation, the percentage of covered workers in a partially or completely self-insurance plan among all companies has grown from 44% in 1999 to 61% in 2014.
However, among employees who work for small firms with fewer than 200 employees, the percentage of covered workers in a partially or completely self-insurance plan has increased only from 13% in 1999 to 15% in 2014. And the percentage of covered workers in a partially or completely self-insurance plan among companies that employ 200 to 999 workers has increased from 51% in 1999 to 55% in 2014, according to the survey.
Nelson also noted congressional Republicans are working on new legislation that would create more self-insurance options for small businesses. He also noted self-insurance plans are regulated by federal laws, which allows companies to bypass burdensome state regulations and the costs that come with them.