SOURCE: Business Benefits Insurance

November 29, 2007 14:25 ET

Smaller Companies Can Lower Health Insurance Costs With Risk-Sharing, Business Benefits Insurance Jim Edholm Writes

Article Shows How 10-Person Company Could Save $12,000 a Year

ANDOVER, MA--(Marketwire - November 29, 2007) - Smaller companies don't have to take a back seat when it comes lowering their health-insurance costs, broker Jim Edholm writes in Benefits & Compensation Solutions' e-newsletter.

Larger employers seem to have an advantage because they can "self-fund" their insurance. "But smaller companies needn't be locked out of the risk-sharing game. With an imaginative and knowledgeable broker, companies as small as a handful of employees can structure a risk-sharing arrangement that will lower their fixed costs," he writes.

Edholm gives an example of a 10-person company that partially self-funds its plan by instituting slightly higher co-pays and larger deductibles and coinsurance requirements that it will self-fund. Premiums plummet by one-third or $29,000 for the year.

The employer tells his staff: "Your doctor visit is going up by $5 and your prescriptions are increasing by somewhere between $5 and $25 per refill. But there's no difference in the hospital care -- we'll pay for all the claims in excess of $1,000."

One in six Americans is hospitalized or has surgery in a given year, so on average only four people among the 23 people employees and dependents in the plan will use the full $4,000 extra that the employer self-funds. It's thus probable the employer will save spend $16,000 extra in medical costs, Edholm writes. After subtracting $1,000 in additional administrative costs, the savings would be $12,000 ($29,000 minus $17,000) for a net cost reduction of more than 13 percent.

Several of Edholm's clients have implemented such a plan, and all have saved money, he reports.

"It can work -- you just need to compare the risk and reward factors of your particular population," he concludes.

Jim Edholm is president of Business Benefits Insurance (BBI), an employee benefits planning firm in Andover, Mass. He has worked with employers for more than 25 years.

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