Credit union leaders have gotten pretty comfortable with letting their employee medical plan cost consistently go up 5% to 10% a year.
That may be acceptable when economic times are good. But, what about when the cycle turns and earnings pressure rears its ugly head? And, return on average assets begins to sink?
What many high performing credit union leaders do in these times is evaluate and reduce the top expenses within the credit union.
One of the largest expenses in every credit union is employee benefits, specifically the group health plan. The cost of employer-sponsored health benefits has risen approximately 54% in the last 10 years.
But, for many credit unions, those annual increases are subsiding. Just like finding a great Black Friday deal or after Christmas sale, credit union leaders have been in search of lower employee healthcare cost for years.
However, what most executives have been missing was the advantage of self-insurance and collaboration. They have historically been trying to manage benefits cost in their own silo. Many credit union leaders have discovered that the majority of their peers are having the same employee benefits cost problems.
While most credit unions are purchasing employee health benefits on a fully-insured basis, some have discovered that using a self-insured (self-funded) strategy allows them to eliminate overspending.
Why? Because, in a fully-insured plan, the employer pays in advance for healthcare its employees may or may not use. If you pay for something in advance, there is a high probability of paying for something you don’t use.
In contrast, when utilizing a self-insurance strategy, you only pay for the actual healthcare used. This eliminates the possibility of overpaying and generally results in a 20% reduction in annual expense for employee health benefits.
One additional risk management tool is implemented when participating in a self-funded plan — stop-loss insurance. Stop-loss insurance protects the credit union from any individual large health claim, as well as cumulative large claims in the group. This allows the credit union to budget for a maximum cost or maximum liability for the entire year.
Why would credit union self-insure their health plans?
There are many reasons why employers choose the self-insurance option. The following are the most common reasons:
- Do not have to pre-pay for coverage, thereby providing for improved cash flow
- Free to contract with hospitals, providers or provider networks best suited to meet the health care needs of its employees
- Can provide a $0-out-of-pocket cost plan for employees
- Can share risk with other credit unions, lowering cost for all participating groups
- Can customize the plan to meet the specific health care needs of its workforce
- Maintains control over the health plan
Self-insuring can be a lifeline for credit unions, creating valuable opportunities for increased cost control and improved cash flow. Those credit unions that step outside the traditional health insurance status quo and use every tool in the toolkit are in a much better position to immediately manage future healthcare costs, allowing them to emerge stronger from an economic downturn.
