Why Self-funded Employer Plans can Reinforce a Health System’s Value Strategy

By Thomas A Malone, MD, Vice President, Health Plan Accounts

Health systems have a variety of strategies at their disposal for improving population health management, and self-funded employer health plans are an option that many health systems are exploring.

A key advantage associated with self-funded employer health plans is that this approach enables health systems to hone the skills needed to manage risk in a more secure environment before pursuing risk-based contracts with outside entities. This approach also brings the benefits of population health management to the health system’s employees and gives the system the opportunity to create a success story it can share with payers interested in risk-based contracts.

Advantages of Self-Funded Plans

Managing a self-funded employee plan has several advantages:

  • Control The health system can take control and customize coverage to meet the needs of its workforce.
  • Flexibility Self-funded health plans are governed by the federal Employee Retirement Income Security Act of 1974 (ERISA), not state insurance laws and are also exempt from many Affordable Care Act mandates.
  • Tax Savings Because self-funded plans are federally regulated, they are exempt from the premium taxes that many states impose.
  • Freedom By running the plan, the health system can use its own provider network which may better meet employee needs instead of being limited to the network created by a third party administrator (TPA).

Weaknesses of the Traditional Model of Health Coverage
Under the typical employer-sponsored health plan, coverage is viewed as a benefit under the purview of the human resources (HR) department. However, this model has several limitations with respect to a health system’s value-based care strategy.

For example, HR officials typically work with TPAs to design the plan and often base their decisions on what they believe employees will accept in terms of coverage and cost. This approach separates employee coverage from any population health initiatives the health system may offer to outside populations.

In addition, third parties designing and managing employee insurance for health systems don’t always emphasize value. For example, some offer discounts for high-volume claims processing, but high claims volume likely means care isn’t being effectively managed.

Finally, efforts to control costs often come in the form of higher co-pays and deductibles, rather than targeted measures to encourage employees to choose high-quality, lower-cost options. And this is happening during a time when employees are reaching the limit on how much more health insurance cost-sharing they can shoulder.

Why Manage Health Plan Benefits In-House?
The above factors go a long way in explaining why health systems are interested in bringing employee health plan management in-house – an approach that not only gives health systems greater control over their own expenditures, but also enables them to integrate employees into their larger population health strategy.

Below are five key advantages of self-funded employer health plans for health systems.

  • Cost reduction and quality improvement: Health systems can focus on cost-reduction efforts that make a difference in employees’ lives, and the resulting savings stay within the system. Approaches that lower care costs and improve quality include: in-network care coordination, chronic disease management, identification and elimination of gaps in care and removal of barriers to care.
  • Improved productivity: Better quality of care can translate into improved productivity because employees feel better on the job and take fewer sick days. Additionally, the proximity of in-network care means less employee time lost traveling to and from medical appointments.
  • Better data: Full management of the employee health plan gives the health system direct access to a wealth of data that the population health team can use to monitor cost and quality performance, identify opportunities for improvement, and act on accordingly.
  • Built-in ambassadors: Success in managing employees’ care and improving their health creates a fleet of ambassadors who can speak from experience about the health system’s quality.
  • Decreased employee churn: Self-funded health plans also provide health systems the opportunity to engage their workforce as a health partner, not just as an employer. This can translate to a decrease in employee churn, as they feel their employer has directly addressed benefit plan designs to support them.

Building Internal Capabilities for Value-Based Care Success
Of course, taking control of the employee health plan is not without its challenges. To prevent staff resistance, leadership must effectively communicate with employees and educate them about the rationale for the change, how it will unfold, and what it will mean to them. Physician communication and education also is crucial. The message that the health system can provide better-coordinated, higher-quality care inside its network needs to be conveyed to avoid unnecessary referrals to out-of-network providers.

Working with an experienced operating partner with proven results can accelerate the capability-building needed for self-funded plans and optimize the health system’s population health strategy. Such a partner works with the health system to build the internal capabilities — such as insurance skills, physician alignment and practice change, data systems capacity and expertise, and other operational functions — that make success in value-based care possible.


Not sure where to start? Talk to one of our advisors.

Contact Us