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Using the table, we see that their experience is given 20% credibility. So their actual rate will
consist of 20% their own experience and 80% the community rate.For a single contract, the rate would be (20%)($108) (80%)($175) $161.60. Simi-
larly, the employee spouse/partner rate would be $336.40 and the family rate would be
$651.00.The company might feel that this rate is unfair, since the rate it will pay is much higher
than the rate that its experience would suggest. However, if even one or two employees
experienced a serious illness, the company’s experience for that year could run much higher
than the community rate. Blending means that the company will pay a higher rate than their
experience in good years, but it also means they will pay a lower rate than their experience
in bad years.Health Care Savings Accounts
Despite the attempts of managed care plans to control costs, costs have nonetheless con-
tinued to escalate. Health care savings accounts (HSAs) are a type of plan that is often
proposed as an alternative to provide health care coverage and control costs. An HSA is
similar to a traditional deductible and coinsurance plan, except that the deductible is very
large. This high-deductible policy is paired with a tax-advantaged savings account, into
which the employee and/or employer makes regular deposits, which earn interest.
The idea of an HSA is that most medical claims are to be paid directly from the sav-
ings account (or from other financial sources), with the insurance policy kicking in only
for extraordinarily large medical expenses. While HSAs generate plenty of discussion and
political advocacy, they have met with limited success in the health care market. How
significant a role they will play in future health care funding remains to be seen.Self-Insurance
Many large companies prefer to bypass insurance coverage altogether and instead choose
to self-insure. With a fully self-insured plan, there is no insurance coverage in place at
all. The employer offers a medical benefit package that may look to employees exactly
like any other health insurance plan, but in fact the responsibility for funding the claims
falls entirely on the employer. Many employers choose to back up a self-insured plan with
stop loss coverage, an insurance contract that kicks in only for unexpectedly large claims
levels. Most of the risk is still borne by the employer, but a stop loss policy protects against
catastrophically large claims.
Companies choose to self-insure for a variety of reasons. If the company believes that its
employees’ medical claims are likely to fall well below average, it may want to self-insure
in the belief that it will pay less by funding the claims than it would by paying insurance pre-
miums, even under an experience-rated contract. The company may believe that it can save
on administrative costs by hiring a company to administer the plan’s claims for less than an
insurance company would build in for administrative and profit loads. Another motivator
is to escape state insurance regulations. Insurance is regulated at the state level, and some
states place restrictions or mandates on insurance plans that the employer may want to
avoid. While self-insured health plans are subject to federal governmental regulations as an
employee benefit plan, since they are not insurance, they are not subject to state laws that
may mandate coverage for controversial medical procedures or limit the employer’s ability
to provide benefits that it wants to offer.Health Insurance as an Employee Benefit
Some employers still bear the entire cost of health insurance coverage, but most now expect
their employees to chip in for at least some of the cost of health coverage. There are numer-
ous methods used to decide how much of the cost will be borne by the employee. Sometimes
an employer will contribute a set amount of money, usually dependent on the employee’s13.2 Health Insurance and Employee Benefits 543