Wholesale v. Retail

Common sense lets us know that purchasing at wholesale rates is a better buying decision versus paying retail, but when it comes to health insurance, what is the distinction? Many small and mid-sized employers don't realize that they purchase at a retail level, and their premiums are allocated mostly towards claims and administrative costs, but also to reserves, profits, taxes, and more. How can these organizations move towards a more transparent model?

For years, Prosperity Benefits has advocated level-funded healthcare plans, which is a form of self-insurance for group benefits. The results for these employers that have been used to paying retail rates is dramatic in terms of cost savings, and many never even realized there were alternatives to the retail purchasing market. As we know, some groups are not able to take advantage of the wholesale model because it requires a company be generally healthy with a claims risk that is commensurate to what their level-funded plan believes they can cover with the claims fund in a given year. Generally speaking, there are 3 buckets of costs that go into a level-funded healthcare plan: claims, admin, and stop loss. One third of dollars are used to fund claims expenses, but if they are higher than anticipated in a given month, the stop loss carrier will cover the difference as that is an insurance policy provision that is included in the structure of the level-funded healthcare plan. If the claims are higher than what the carrier anticipated they should be, then the stop loss will cover the overage, meaning the employer doesn't have to come out even a dollar over the claims fund. The 2nd bucket of funds covers administrative costs that include processing claims, renting the network, customer service, technology portals, broker commissions, and other costs. Lastly, as alluded to previously, stop loss is purchased. Stop loss is insurance that protects the client from catastrophic or unanticipated claims that exceed the predetermined claims fund amount. In all, with apples-to-apples coverage, employers can expect to see 15% or more in savings using this model.

Many employers believe their workforce would not be healthy enough to qualify for a level-funded or self-funded arrangement, but that is where underwriting comes into play. Prosperity Benefits uses FormFire to collect the health risk demographics of your group if they are not available from the carrier (for groups under 125 enrolled lives). Underwriters can accurately define the anticipated risk from the group. Some carriers offer RX underwriting, meaning employees don't have to fill out health statements at all for firm rates to be released! The market for small and mid-sized companies has changed dramatically in the past several years, opening savings opportunities that were traditionally reserved for much larger companies.

Buying wholesale; making sense yet?