This article was created in partnership with Verikai.
The importance of health insurance cannot be overstated—it is a critical component of employee well-being and financial security. For decades, fully insured health plans have been the standard choice for many employers, offering a predictable model.
However, the landscape is changing. A growing number of companies are shifting to self-funded health plans, seeking greater transparency, control, and cost savings.
This trend, driven by advancements in data analytics and artificial intelligence (AI), is reshaping the way businesses approach health insurance.
James Hughes (pictured), Senior Sales Executive at Verikai, sat down with Insurance Business to share insights on why this migration is happening along with the benefits of switching to self-funded solutions.
Fully insured plans have long been the go-to option for employers, especially those with smaller employee groups.
Under this model, employers pay a fixed premium to an insurance carrier, who manages the claims. According to Hughes, there are significant drawbacks to this approach.
"The fully insured model does not provide their clients any meaningful information," he said.
"Employers do not get access to their claim data, such as high-cost medical claimants or prescription costs. They're simply handed a renewal each year, often with a cost increase, without any and/or little justification."
This lack of transparency and control has left many employers frustrated, as they are unable to make informed decisions about their health plans or understand the factors driving cost increases.
According to Hughes, partially/fully self-funded plans, where employers assume the financial risk for their employees' medical/RX claims instead of purchasing "off the shelf" traditional insurance, are rising in popularity.
A recent study published in Health Affairs revealed that in 80% of U.S. counties, the majority of health plan enrollees are in self-funded plans. Moreover, the number of self-funded employers increased from 55% of the market in 2015 to 60% of the market in 2021.
This shift is largely due to the enhanced visibility and control these plans offer over healthcare costs.
"When an employer moves from a fully insured arrangement to a self-funded program, they achieve the ability to better contain costs and alter benefit programs offered to their employees," Hughes said.
"This includes adjustments on catastrophic medical coverage, RX formularies, and other plan elements. The employer gains access to their claims experience, which allows them to make educated decisions on what is best for their employee population."
Hughes said that this flexibility arises from the fact that self-funded plans are not constrained by state filing requirements.
"Carriers offering fully insured programs are required to file benefit plan designs with the states that they conduct business in. Once filed, deviations are disallowed. Under a fully insured (guaranteed cost) contract, an employer’s best-case scenario is waiting for an expensive state re-filing by the carrier at some point in the future."
Hughes explained, "For example, if a fully insured employer wanted to change RX formularies to exclude GLP-1 drugs, their hands are tied until the re-file, while this is an option for self-funded buyers."
Self-funded plans also offer employers the opportunity to actively engage in health loss ratios.
In the event of a favourable loss ratio, employer groups will receive either a portion, or the entirety of their aggregate surplus, a contract functionality not possible under fully insured plans, Hughes said.
The transition to self-funded plans has been significantly aided by advancements in data analytics and AI.
Companies like Verikai are at the forefront of this movement, providing employers with the tools they need to analyze and manage their healthcare data effectively.
"We simplify data access, empowering decision-makers to confidently shift away from the fully insured market," said Hughes.
"Verikai uses AI and machine learning to provide a comprehensive analysis of past and current claims, and a prediction of risk over the ensuing year.”
The platform uses basic census information, such as name/age/gender/geographical location, in order to generate risk scores for targeted populations.
Verikai also asks, when possible, for street address intel, making the company unique in its own space.
"While not required, street addresses allow for enhanced SDoH (Social Determinants of Health) data collection, therefore, increasing our ‘match rate’ for any given population. This score allows employers to project future risks and make informed decisions," Hughes said.
Verikai’s streamlined approach empowers employers to qualify risk swiftly, enabling them to confidently navigate the transition to self-funded plans.
"We empower each group that we work with to achieve clarity into 3 primary objectives: risk selection, risk avoidance, and risk mitigation," Hughes said.
