AS medical premiums continue to rise, some employers are searching for ways to control expenses without negatively impacting health coverage for employees.
That’s why more companies are weighing the pros and cons of implementing a self-funded — or self-insured — health plan, instead of offering a traditional, fully-insured group health insurance plan.
What is fully insured medical aid plan?
A fully-insured medical aid plan is the traditional route of insuring employees under a premium for benefits model.
Employers pay a fixed premium price to a medical aid society for the employees who are enrolled in medical plans, and the medical aid covers those employees’ medical claim expenses.
Fully-insured medical aid plans can be more expensive than self-funded options, but they can also offer more financial predictability and can be a more attractive benefit option to employees — a proven way to increase retention.
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Some potential downsides include higher taxes, possible premium hikes and tough medical aid premium benefit negotiations.
Under a fully-insured plan, premium rates are periodically fixed based on the number of enrolled employees you have in the plan each month and will only change if the number of employees changes.
The medical aid pays medical claims based on the benefit outline, and employees must pay any shortfalls or co-payments required for covered healthcare services under the plan.
Full-insurance covers are popular because they eliminate the administrative duties and expenses related to a self-insured health plan, and they lower financial risk because the medical aid company has the job of dealing with all claims of employees.
What is a self-insured medical cover?
With a self-insured or self-funded plan, you run your own medical plans and assume all financial risks for providing benefits to your employees.
Individual companies are free to implement a benefit plan design that will meet their employees’ unique needs.
In addition, they can provide companies with additional savings on premium costs,
However, they do come with more financial risk and administrative burden for the self-insuring company.
In a self-insured medical aid plans, the company is responsible for calculating the fixed and variable costs of the plan.
The cost projection should include administrative expenses, stop-loss premiums, and any other set fees.
This can also include staff management fees, third-party administrator fees or software administration fees.
Proposal
Whereas there is no one size fits all solution due to the myriad of challenges and opportunities facing different companies when it comes to the decision self-insure or group insure, historically, self-insurance models have mostly been used in larger sized companies who have the critical mass to sustain potentially high medical expenses.
Self-funding models are most likely to deliver value on younger aged staff populations as inherently risk of medical costs increase with age.
The actuarial determination of benefits structure is a delicate exercise that can only be carried out by trained and experienced staff for which most companies do not possess such skills, thus pushing the narrative for fully-funded insurance cover.
The advent of the data protection act also requires self-insuring companies to ensure compliance with data protection tenets.
Therefore, the proposal is to have a hybrid approach to medical aid cover wherein a situational analysis of each company is carried out before a tailor-made medical cover solution is designed in order to strike a balance between the need to cover staff medical expenses and also potentially save on premium costs.
Godfrey Mushonga is the general manager of Quest Vitality Medical Scheme, a medical aid scheme offering tailor-made solutions for corporates and individuals alike