Self-funding is nothing new to the healthcare world, with companies opting to pay for out-of-pocket claims for their employees’ care rather than paying a fixed premium to an insurance carrier for coverage.
Just how prevalent is this approach to health insurance? A 2020 survey by the Kaiser Family Foundation found that about 67% of employed and insured workers are covered under self-insured arrangements.
Companies like Berkshire Hathaway, JPMorgan Chase, and Amazon have made moves to address the cost of their healthcare benefits. Some of the largest self-insured employers have even started to directly negotiate prices with hospitals. While employers might opt for self-funded insurance to cut costs associated with health benefits, that theory is not always the reality.
A study published in the American Journal of Managed Care examined inpatient hospital prices and employer market power in the U.S. from 2010 to 2016. The researchers found that employer market power was low in most metropolitan areas, offering a potential explanation for why employers historically have not taken a more active role in price negotiation with providers.
By being more proactive and investing in relationships with self-insured employers — locally, regionally, or nationally — health systems can build a foundation for lasting success.
Containing Cost While Attracting Patients
Why do companies self-insure? Beyond controlling costs and improving cash flow, a self-funded health plan leads to a more flexible design, improves access to data and benchmarking, and better directs utilization.
Instead of paying premiums to an insurer, employers pay claims filed by employees and healthcare providers. These self-insured companies are free to contract with providers or provider networks that are best suited to meet the care needs of their employees, which creates a tremendous opportunity for providers.
Hospitals and health systems can capitalize on this by offering high-quality, cost-effective healthcare. Companies rightfully prioritize the health and wellness of their employees, and providers would be wise to be aware of this goal.
A Recipe for Success
When employers opt to handle their own insurance policies, they’re looking to cut costs while maintaining a high level of care for their teams. While partnership negotiations with providers might be a breeze for larger employers like Amazon or Walmart, smaller employers that want to self-insure have less leverage. Some have formed purchasing alliances with local or state government employee groups to give themselves more market power — and negotiate lower prices with providers.
Instead, hospitals and providers that want to form these partnerships more directly should try to spark conversations with local employers to gauge their interest in working together. These providers should also implement employers as part of their outpatient strategy, focusing on the health of employees while keeping costs relatively low.
Although many companies care deeply about the care of their employees, health insurance often boils down to a matter of budget. Employers might not see a significant quality difference between healthcare providers — one system’s weaknesses might be another system’s strengths (and vice versa) — and are happy to create a benefit that preferentially treats one system over another as long as it lowers copays.
Hospitals and health systems need to find ways to motivate folks to come to their facilities. And working directly with self-insured employers can make it more financially beneficial for everyone to choose your providers. When self-insured companies form lasting partnerships with hospitals and other providers who can offer care to their employees in a cost-effective manner, everybody wins.