Many companies, particularly larger ones, are moving away from fully insured health coverage programs to a self-insured healthcare model to help control costs. In fact, nationwide, 65% of workers are covered by a self-funded plan. By making this switch, employers and their staff can save big on health benefits. In addition to cost savings, self-funded plans often are more flexible for employers than traditional plans and allow for better management of healthcare expenses.
As popular as self-insured plans are nationwide, one state that is falling behind this trend is California. California is considered one of — if not the most — progressive states in the U.S., but not on this topic. For example, the state recently passed a new pay transparency law, giving employees more power and the ability to understand and compare industry pay. Despite progress in some areas, like labor law, California’s healthcare system remains restrictive.
Three reasons California employers should consider self-funded health plans
California’s health insurance system is one of the least progressive in the nation.
Behind Hawaii, California has the second-lowest number of residents on a self-funded health plan, making up just 42% of employer-sponsored insurance in 2022. Self-funded plans are more progressive than private insurance, allowing employers to make use of fully customizable benefits and only pay for healthcare services rendered. However, many covered California companies are not properly educated on their self-insured health insurance options.
California is fueled by local business, with 4.1 million small businesses accounting for 99.8% of all business in the state. To best serve the 7.2 million people these businesses employ, employers need to understand there are other coverage options for more affordable healthcare.
Health system consolidation, like what’s happening in California, is driving up managed healthcare costs.
The rising cost of health coverage is straining U.S. employers and employees. The Centers for Medicare and Medicaid Services (CMS) predicts that healthcare expenditures will reach approximately $6.2 trillion in 2028, a 50% increase from 2020. Including premiums and deductibles, U.S. adults spend an annual average of $12,500 on medical care expenses.
One of the key factors driving higher managed healthcare costs is consolidation. When left unchecked, hospital consolidations and mergers lead to a lack of competition, higher prices, financial risk and a lower quality of care. One study showed hospitals that lack competition within a 15-mile radius have prices that are 12% higher than those with four or more competing hospitals.
A California Health Care Foundation report found that hospital markets are now approaching “monopoly levels” in many covered California counties, resulting in increased prices for healthcare services and coverage. The state is attempting to pass the Health Care Consolidation and Contracting Fairness Act of 2022, which would expand the Attorney General’s oversight to include all healthcare transactions and allow for the assessment of impacts on communities, costs, competition, coverage and benefit of care. Unfortunately, this is the third attempt to pass such a bill.
Rather than wait for the state to adopt a new policy and fall victim to hospital monopolies, covered California employers must be proactive in evaluating their healthcare solutions.
Other states have increasingly turned to self-funded plans, including ones that use reference-based pricing, to drive down healthcare costs.
North Carolina and Nebraska are leading the charge, with 73% of covered workers enrolled in self-funded plans in 2022. A recent survey found 67% of covered workers enrolled in self-funded plans across the U.S. in 2020, and the number of employers offering self-funded benefits increased from 2019.
Self-funded plans are more economical than traditional ones, allowing employers to only pay for healthcare services their covered employees have received instead of paying for total coverage and services that might go unused. Claims are paid as they are incurred, versus a regular repeating payment to a carrier. Additionally, plans that use referenced-based pricing use the cost of services and Medicare reimbursement amounts as a baseline, leading to significant coverage cost savings for both employees and their employers.
Californians have instituted progressive reforms in a number of other areas, but why not health coverage?
Fortunately, covered California employers are not limited by their state’s restrictive health plan system. There are already self-funded options available that will help employers drive down healthcare costs for businesses and their employees. In a competitive job market, this can be a key differentiator for talent exploring new opportunities in California.
California employers have many options when it comes to health plans. Contact Imagine360 to learn about a more flexible and cost-effective solution.