Small businesses are relentlessly efficient and public charter schools take efficiency to an even higher level. Therefore, when assisting a small business with their employee benefits, creativity is key, especially when it comes to one of the biggest ticket employee benefit expenses; health insurance. As Pine Forest Charter School has learned, exploring all options can lead to rewards.
One strategy that is not frequently explored or implemented is partially self-funded health insurance. While large businesses (those with 100 or more employees) frequently explore this option; smaller businesses have frequently been limited to fully insured options. Let’s explore how this option works.
A partially self-funded plan breaks the costs down into two separate buckets, if you will. In the first bucket you have fixed expenses, such as administration and cost for claim insurance. This claim insurance can be broken down into two categories; insurance for large claims incurred per person and insurance if the claims of the entire group are greater than expected. The next bucket is the variable expenses, the actual claims that a member of a group incurs. During the underwriting process, the insurance company sets the premium based on the maximum expected claim expense.
If a group has claims in excess of the limits set by the policy, the group is protected against high claims cost through the insurance policy. However, if claims are less than expected by the insurance company, then many of these policies refund some or the entire excess premium collected back to the insured company. Yes, you heard me right, if the company collects more than it should have for claims, then it refunds the money back to the policyholder at the end of the policy run-out (typically six months after the policy period). Take for example, Pine Forest Charter School. After participating in the partially self-funded program for about a year and a half, they are anticipating a refund of excess claims reserves in the coming month or so.
According to Bernice Hall, business manager at Pine Forest Charter School, “The anticipated claims refund is quite a light at the end of the tunnel, for sure!”
But doesn’t this just seem like the insurance company “holding” money that was overcharged? Perhaps, however, most small businesses have no idea how much of their premium is actually being used for claims. When you have a fully insured policy with an insurance company, they profit when claims are lower than expected. In a partially self-funded model, the group insures that excess insurance premiums are returned to the policyholder. According to Hall, “Our premiums seemed a little high, but knowing some of that is coming back to us is encouraging. I guess our group feels basically healthy, too! I’d say teachers in an elementary/middle school have more than normal exposure to communicable diseases, so yay for our track record.”
For more information on creative employee benefit solutions, please contact Benefit Logic.
By Ed Gussio