Pay less, feel better: self-funding of health benefits.

• Author: Swagerl, Will
• Position: Cost effective health plans for small business

A cost-effective plan to help cure health care headaches for small businesses.

When Matanuska Maid Dairy officials saw employee health insurance premiums rise 10 percent for several years running, they got worried. But when the Anchorage bottler and distributor's latest bill included a 15 percent increase, they decided to act.

Comptroller Irene Bartee says the company had been talking for some time about self-funding their employee health insurance and the increase made self-funding appealing.

Last September, instead of paying about $15,000 monthly in premiums to insure its 37 employees, Matanuska Maid started banking the money. Employee claims were paid directly from the account, with the paperwork done by a third-party administrator.

Bartee says the company is spending only 65 percent of the money it had set aside for health claims. The firm now has more than $15,000 in the bank, and the reserve is building.

The success of Matanuska Maid and the similar experience of other small companies is one of the reasons that self-funding of health insurance has become a national trend.

"It's a hot topic in many parts of the country," says Donna Weathers, the Northwest sales consultant for CENTRA Benefits Services Inc. in Seattle, which handles large self-funded clients with up to 40,000 employees. "It doesn't work for everybody, but when it works, it usually works pretty good."

Jack Brandt is the chief operating officer of NCAS-Northwest, a subsidiary of Blue Cross, which offers administrative-services-only contracts to self-funded programs. He estimates that up to 70 percent of private-sector employees in Alaska are insured through self-funding. The interest is high, he says, and the number is growing, especially among smaller Alaska businesses.

"Self-funding has the potential to save you quite a sum of money," he says. "But, like your lawn, it can't be left untended."

WHY SELF-FUND?

For Tim Ryan, vice president of operations for Sitka Sound Seafoods, a hard look at the numbers answered that question for his company.

Ryan says when he and other executives of this Sitka-based fish processing business studied their claims history, they discovered that the medical bills handed in by their 85 to 100 employees totaled only 40 percent to 60 percent of what they were paying out in premiums. The rest was profit to the insurance company.

In the first 18 months of being self-insured, says Ryan, Sitka Sound was able to save about 30 percent of what it had been paying out in premiums. And the savings allowed the company to continue offering dependent coverage, which otherwise Sitka Sound would have needed to phase out to meet rising costs.

Kent Davis, a management partner for Risk and Benefit Management Services (RBMS), says stories like Sitka Sound's are not unusual. He says he has seen companies save as much as 40 percent of their health insurance costs by taking the self-insured route.

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