Ways to “Carve-Out” Group Health Plan Savings

A self-insured group health plan differs from a fully insured plan in that the employer — and not the insurance company — assumes the financial risk of providing health care benefits. The employer pays for medical claims out-of-pocket as they are incurred. An employer who self-insures can:

• Eliminate the insurance company profit margin.
• Control plan design.
• Get full access to claims data to better understand how money is spent and analyze the types of coverages that would best fit employee needs.

The downside of self-insurance is the risk of claims becoming higher than expected. While this is something larger employers may be able to handle, smaller employers need to use risk management tools such as level funding, which utilizes stop-loss insurance to lower risk.

Carve-Out Advantages

 Another way for self-insureds to control medical claims is to work with a health insurance carrier to design a carve-out plan. A carve out plan excludes specific situations, conditions or products that may be considered too costly under a regular group insurance policy. A well-designed carve-out program allows employers to better predict plan expenses by pulling volatile areas of care out of the health plan.

Conditions that are excluded are then covered by a third-party vendor — such as an insurance carrier or several carriers. The carriers assume the financial risk and receive a flat fee in exchange for their coverage.

Carve outs can exclude the following conditions:

• Cancer
• Trauma
• Cardiac care
• Neonatal intensive care
• Organ transplant
• Burn treatments
• Visual services
• Dental services
• Specialty drugs
• Mental health

Carve-Out Disadvantages

An employer could face some challenges with a carve-out plan. If you are considering incorporating a carve-out plan into your self-insured health benefit plan, here’s what you should consider:

• An insurance carrier may require your group meet minimum participation requirements.
• You and your employees may be required to fill out health questionnaires. Anyone who is categorized as high-risk may be denied coverage.
• Insurance providers may restrict you from offering alternative choices or options through other insurance companies.
• You will have to draft multiple pharmacy and medical contracts since you will be dealing with more than one vendor for different products.
• Your company may face some transitional challenges while dealing with employees’ health insurance. For instance, it can be confusing for employees to keep track of which insurance carrier is covering which medical condition. This can also make claim processing difficult.
• There is a possibility that a third-party provider’s performance may be subpar.
• Your company may lack the systems, skills, and human resources to manage the risk effectively.

As always, talk to your broker about your options and whether a carve-out plan would be a good fit for your company.

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