By Tom Doney
It’s belt-tightening season in Wisconsin. Governor Scott Walker recently signed a bill requiring that state agencies submit plans to reduce their 2017 budgets by 5 percent.
The state’s biggest savings might end up coming from another, unexpected source — health insurance. Wisconsin is considering moving its 250,000 workers and their dependents to a self-insured health plan. Some experts have projected that the move could save the state upwards of $42 million a year.
Wisconsin should waste no time switching to self-insurance, which will save taxpayers hundreds of millions of dollars and provide state workers with better, more customized benefits.
More than six in 10 Americans with employer-sponsored health coverage are in self-insured plans, according to the Kaiser Family Foundation — up from 40.9 percent in 1998. Self-insured plans are often administered by third parties like my company, Cypress Benefit Administrators. So many workers who are covered by self-insured plans don’t even know it.
Under a self-insured plan, employers pay workers’ healthcare claims directly, instead of remitting insurance premiums to a conventional insurer.
In other words, the employer becomes its own insurer. Employers typically hire outside firms to manage the plan and process the paperwork. But the employer bears the risk.
Self-insurance offers employers flexibility. They’re not locked into the one-size-fits-all offerings of conventional insurers. Because they pay the claims, employers can customize their health benefits to meet the needs of their employees.
For example, if a manufacturing company has a slightly older workforce with higher-than-average rates of chronic diseases like diabetes or hypertension, it can implement wellness programs and install on-site health clinics to ensure that its workers get the preventative care and medicine they need. An employer with a younger workforce, meanwhile, could focus on family-planning and pediatric benefits.
By offering more relevant benefits that can reduce the chances of catastrophic, high-cost claims and cutting out insurance middlemen, self-insurers can save big. Typically, a business or government that self-insures can anticipate saving 12 percent in insurance costs each year. In some cases, savings can reach 25 percent.
Consider the case of the Waukesha, Wisconsin, School District. By self-insuring, the district saved over one million dollars in its first year. And it’s not alone. The governments of Milwaukee, Madison, Appleton, and Green Bay have all done the same — and realized savings as well. Milwaukee County, for example, saved almost $32 million in the three years after its switch to self-insurance. Twenty-six states self-insure benefits for their entire workforces.
My company, Appleton-based Cypress Benefit Administrators, offers another illustrative example. Through self-insurance, we’ve cut our health costs by 13 percent over the past five years. The businesses we work with have seen similar savings. Last year, our clients’ health costs per employee came in at nearly 40 percent below the national average, thanks to the flexibility offered by self-funded plans.
Critics of Wisconsin’s plan to self-insure claim that it would cost more than the fully insured status quo. They assert that the state would lose the favorable rates its current insurers have negotiated with healthcare providers, if it strikes out on its own.
But that’s illogical. An insurer’s ability to negotiate payment rates is largely a function of how many people it covers. Wisconsin’s self-insured plan would cover upwards of 250,000 enrollees. That’s about one-quarter more than the number of people insurance giant Anthem covered in Wisconsin in 2013.
In other words, the state of Wisconsin would come to the negotiating table with more leverage than one of the state’s biggest insurers. It should have no problem driving a hard bargain.
Other budget-minded critics say that the state should pare back its benefit offerings to save money. Currently, the state offers plans from 17 different health management organizations. One alternative proposal suggests a maximum of three plan options for state employees. Such a move could save the state between $45 and 70 million per year.
But by decimating the number of plans it offers, Wisconsin would shortchange state employees. They may have to settle for plans that don’t fit their needs — or deal with higher premiums, greater out-of-pocket costs, and lower-quality benefits.
There’s no need for such draconian measures. Self-insuring would allow Wisconsin to save just as much money — without sacrificing the quality of benefits.
The debate is over. At a time when agencies across Wisconsin are struggling with budget cuts, self-insurance offers a rare win-win for the state and its residents.
Tom Doney is the president and CEO of Cypress Benefit Administrators.
