Insurance analysis involves more than up-front costs

Mike Scott is an account executive with Barker Phillips Jackson Insurance.

As insurance rates climb, the public always looks for ways to cut costs. Rates have seemed to skyrocket over the past few months, with only minimal signs of leveling. This type of market condition always brings a resurgence of gas station flyers, utility pole signs, mass faxes and e-mails asking, "Tired of Paying Too Much for Your Health Insurance?"

As you can bet, these types of advertisements are probably too good to be true. You would only see a licensed doctor for your own health, and most of you look for a certified mechanic to work on your car, so why would you buy insurance from a telephone pole ad or a flyer in a convenience store?

One often-marketed idea during rate inflation is self-funding. This option should be analyzed very carefully. There are some agents that talk about the benefits of self-funding or partial self-funding, but they somehow forget to tell you the whole story. They don't talk about your maximum claim liability, or explain the need to purchase aggregate insurance, or discuss terminal liability. Aggregate insurance covers losses in excess of the projected maximum claims liability.

They try to tell you that the insurance companies are the ones with all the money and that you can save part of that by self-funding. Sometimes it is true that you can, but my experience has been that you should have at least 100 employees on the plan for self-funding to be feasible.

Self-insurance is one of the three primary methods of financing health care. Partial self-funding is the second method, and fully insured is the third. Fully insured has the least risk.

Self-insurance is defined as fully insuring all the losses with no reinsurance. The insured is taking responsibility for all costs. Self-funding is typically partial self-funding, whereby you purchase reinsurance to cover any losses above a specific amount.

Last year the Missouri Chamber of Commerce endorsed a plan for small business called Missouri Chamber Care, which mixes these last two methods. It combines a fully insured plan with a very high deductible. The plan requires you, as the employer, to fund the claims between the benefit plan you had, and where the new high deductible plan takes over.

While this appears a good idea on paper, you must consider your liability as an employer who is accepting the responsibility to pay claims. Are you willing to take on that much fiduciary responsibility? Who is responsible to pay the claims, hear the grievances and make eterminations on the amount you denied? Do you really want to know what your employees' health issues are? Would that information affect your decisions?

Another important component of self-funding health care is the claims cost. Administering the claims, having providers, paying claims and the review of those claims are pretty standard across the board. You can typically count on these costs being 15 percent to 20 percent of total health care costs. The real savings are the claims themselves.

Will you, as an employer with 35 people, get the same discount that a managed care network with 100,000 participants gets? Most likely not. Look at your own business who gets a better deal, the people buying 35 units or 100,000?

Many people lose sight of this "hidden benefit" in health insurance. An example is a $25,000 cardiac claim at a local hospital. After the negotiated discounts were applied, the claim was just over $6,000. That not only means you, as the employer, save in premium expenses, it also means the employee paid his portion based on a discounted price.

Next time you see an ad for something too good to be true, beware. Check it out with a professional licensed insurance agent that you know and can trust. They have your best interest at heart and will be able to answer your questions about these fads.