Frederick D. Hunt, Jr. - SPBA Active Past President
Let me start by saying that I have the nickname "Frugal Fred", so whatever thrifty thoughts have crossed your mind, I'm with you. That having been said, this letter is to warn you about some situations where "frugal" turns to "foolish" (not to mention costing lots more than the desired "savings"). So, I'm going to give you some straight advice from my 40 years of watching this process play out over and over.
With health costs again on a steep climb, everyone is grabbing for ideas of how to trim exposure. It is not an issue of self-funding versus fully-insured or HMO. Medical costs are medical costs. Insurance companies are hit too, probably harder, due to state-mandated benefits, less flexibility, and their need to make a healthy profit between what you pay them and they pay out. (In self-funding, the "profit" is your savings.) So, insurance companies & HMOs are adding in the new higher medical costs plus their profit margin as they increase premiums and HMO rates. This hits everyone.
Many of SPBA's member TPAs are floating with us ideas you have floated with them about ways to avoid a specific current exposure and/or avoid some type of claims in the future. The ideas may seem logical on the surface or in the desperation of facing a big claim. However, most of the ideas would end up costing you far more cash than any elusive "savings". Most of the cost-saving ideas are "What if we deny or stop coverage for......?" The follow-up question is "What specific section of what law(s) would prevent us from us from doing this?"
There is constantly a flow of new Federal laws whose interpretation and applicability are still evolving (and will still be evolving for another decade). In many cases, a common-sense reading of the law & regs...and even what has seemed OK yesterday gets turned on its head by a new interpretation or ruling. There are also laws along the same lines in many states. As mentioned before, these impact fully-insured plans, HMOs as well as self-funding. So, in most cases, an insurance company or HMO will just say "no" if you asked to custom-design or insert your own exclusions, whereas TPAs & self-funding have a long tradition of trying to explore options and be flexible.
Virtually every new idea floated creates a problem under one or more of the laws mentioned above. The frustrating part for you, your TPA and us is that we can't point you to page ___, paragraph ___ of the law or regulation that has not been finalized. These laws are evolving on a case-by-case basis, either through enforcement from the applicable agency, or in the court system. So, we can't give you a specific legal citation why something can't be done. What we can tell you is how government is apt to view or judge it, because we brainstorm these kinds of things with the regulators frequently as association staff, and our members meet face-to-face with them each Spring to seek options or relief. So, the key is not specific legal citations, but how the regulators are thinking....and thus how they would probably judge the idea if it was done. Also, most of the ideas raised cross the lines and impact of several of the laws. (For example, people often raise an "ERISA" question, but it actually triggers impacts from Mental Health Parity and/or Americans with Disabilities laws.)
So, why do I say this is a cost-efficiency issue? To be blunt, the question you should ask yourself is "Would I rather spend money on my employees' health services...or on lawyers' fees & penalties for the years it will take for this to drag through the agency enforcement or court processes?" I have seen a company do something that seemed logical, in order to save $5,000. It ended up costing them over $500,000 in legal fees. The case took away the valuable time of the senior staff, and the reputations of the firm and the officers were permanently smeared. That is an extreme case, but it is normal to have to spend 400%-500% more cleaning up the mess made, than would have been spent before the "savings" idea. Government fines for noncomplianceÉeven for "innocent" unknowing non-compliance...can cripple an employer entity.
It's not just money. There are huge morale, retention, and reputation issues. The whole reason you have a health plan is to attract and keep the good staff you need to run your business. If they feel their employer is short-changing or weaseling, that hurts morale...especially if it is a sad case (which most are). It also does not take long for a Scrooge reputation to spread around the town or region, thus hurting your reputation with your customers or clientele..
The "savings" ideas also comes to a crunch because IRS requires you to apply plan rules absolutely equally. So, when you exclude paying for someone's exotic whatever, you must also forever deny that same situation when it happens to someone in your family or the boss' family. These are all the kinds of things when "frugal" suddenly looks very counter-productive "foolish".
"Frugal Fred" is not saying you have to just roll over and be a money tree. No, you have advantages. By using self-funding and a TPA, you already have the maximum flexibility allowed by law. Your TPA is also part of a national network of TPAs that has great respect from government agencies who decide what complies and what doesn't. We and your TPA can not give you legal advice, but you'll get good common-sense feedback. Sometimes there is another tack that can be taken to achieve your goal.
So, let me leave you with two requests. (1). Don't get so blinded by your desire to control some particular situation that you end up creating larger problems for the future. Do this with a clear mind and long-range big-picture thinking. (2). Don't shoot the messenger who tells you what you don't want to hear. Whether it is your TPA or SPBA, it may not be what you were hoping to hear...but it is the best effort to guide you to the least trouble over the long term. Good luck, and know that by offering benefits to your workers, you are being part of the solution, not part of the problem.