W H I T E PA P E R
The New Imperative for
CFOs and CHROs
Exploring funding options for efficiently
financing healthcare spend
W H I T E PA P E R
The New Imperative for CFOs and CHROs
Healthcare plans are increasingly complex and costly for organizations. In fact, our recent State of the Market Report
which outlines forecasted benefits trends, indicates that medical claim costs are expected to increase significantly.
Prescription claim trends are forecasted to increase substantially as well, depending on whether you are looking at
retail or specialty drugs.
A number of influences have led to an increased severity of high-cost claims including complications due to
suppressed utilization during the pandemic, newer high-cost procedures and treatments, as well as the cost of
specialty medications. Due to the frequency and severity of larger claims, stop-loss premiums will also climb
16 - 19%, while the prevalence for lasers (higher deductibles for specific members) are pushing additional liability
to self-funded employers.
Costs are expected to increase further in the next few years as
the impacts of inflation begin to bear out across the healthcare
marketplace. Inflation in healthcare lags general inflation
because of the multi-year agreements prevalent in health plan
contracts between insurers and providers. All of this is occurring
in a volatile, uncertain economic environment.
Meanwhile, managing escalating benefits costs, driven by medical plans, is not a simple balance sheet proposition.
Never has it been more critical to ensure any cost containment measures do not impact your organization’s recruit
and retain strategies. Escalating costs cannot be shifted to employees without acknowledging employees are cost-
sensitive themselves with household inflationary pressures. In a post-COVID-19 world, employees now consider
medical benefits as a critical factor in choosing an employer. What were once considered fringe benefits, such
as accessible mental health and wellness programs, are becoming essential to attract and retain employees. In
addition, DE&I (Diversity, Equity & Inclusion) efforts have naturally led to diversity in benefits needs. Organizations
are considering their employee demographics to ensure they are offering the right benefits to keep employees
healthy and productive.
With the economic headwinds, and the potential of layoffs or hiring freezes, organizations need to find new ways
to keep benefits that matter most to employees while controlling costs. It is now essential for the CFO (and CEO) to
partner with Human Resources to strike a balance. Together, they must explore all options for efficiently financing
their healthcare spend through evaluation of their current funding model. Evaluating the variety of funding models
available to meet your organization’s current business objectives can reveal the best of both worlds: reduce costs
and customize benefits for your employee population. Reviewing alternative funding models should be included as
a part of your strategic benefits planning to feel out if, and when, your organization is ready to ‘unbundle’ certain
coverages and manage them directly.
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Creating a long-term budget-based benefit
design that supports business strategy
Deciding on your organization’s health plan funding
arrangement is a decision that should be based on your
business objectives, population, claims history, and risk
tolerance.
It requires looking at funding options as part of the
long-term benefits strategy versus a short-term reaction
to expense management. For many organizations,
particularly those currently fully insured, it is an iterative
process that builds with increased data and evolving
needs.
When finance and HR come together, they can develop a
budget-based benefit design — a holistic view of employee
benefits that keeps pace with the business strategy and
meets both financial and employee benefit objectives.
To build this long-term strategy, it is important to:
• Perform a cost-benefit analysis of your current health
plan(s) and funding arrangement
• Prepare a multi-year cost projection
• Develop an understanding of the complexities,
advantages, and disadvantages of the various funding
options
• Have a plan to move along the spectrum of funding
alternatives as evolving data continues to inform
choices
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Understanding the pros and cons of funding models
Advantages and disadvantages to consider when determining the right funding strategy for your organization.
Fully insured healthcare plans
Fully insured plans are typically utilized by employers with less than 250 employees, although employers
of any size can be fully insured. In a fully insured plan, the employer pays a fixed premium to the insurance
carrier based on headcount.
ADVANTAGES DISADVANTAGES
redictable premiums and cash flow make
+ P – A
major disadvantage is premiums may exceed
budgeting reliable. claims and plan administration costs.
lan administration is easy. Employers simply
+ P – E
mployers will be limited in how much data can
pay the monthly premium, and the carrier be accessed to identify cost drivers, especially if
manages the rest. they are smaller; each carrier determines what
+ The carrier assumes all risk. details are available based on group size. Nor
will they have visibility into pharmacy rebates,
+ A
n employer can obtain a participating contract
and they will not receive any pharmacy rebates
that allows them to recoup a portion of
directly.
premium payments if claims are lower than
projected. This also gives them access to some – T hese plans are inflexible—it is hard to unbundle
data to help inform if it makes sense to consider plan elements to manage costs and there
an alternative funding model. However, it should are limitations on plan design. For instance,
be noted that some participating contracts have pharmacy claims cannot be procured through a
deficit carry-forward provisions creating a level of third-party Pharmacy Benefit Manager (PBM) to
risk. realize better discounts and rebates.
nnual premium increases are out of an
– A
employer’s control due to lack of access to
critical claims data that would allow them to
proactively manage their plan and costs such
as high-cost medical and pharmacy claims.
Employers are largely limited to adjusting plan
design to manage cost.
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Level-funded healthcare plans
Level-funded plans function much like a fully insured plan. The fees and premiums paid monthly are level. It is
the first step along the self-funding spectrum.
ADVANTAGES DISADVANTAGES
+ T hey allow for some customization to the plan – L evel-funding is packaged and cannot be
design. unbundled.
+ E
mployers have more transparency into rate – E
mployers may find that high fixed costs such as
components (administrative fees, stop-loss administrative fees and stop-loss premiums can
premiums, claims liability, and reserves). cut into potential cost savings.
+ O
rganizations can receive cost savings. If claims
– A
ccess to data for small employers can be a
are lower than expected, they will get an end-of-
double-edged sword because poor data may
year refund. They will also see — or at least get
negatively impact marketing.
credit for— pharmacy rebates, which often take
the form of a monthly administrative fee credit. – A
dditional administrative tasks will fall to the
+ Risk mainly falls on the carrier. employer (e.g., PCORI payment remittance, ACA
reporting depending on group size).
+ S
maller companies that cannot absorb the
administrative burdens and cash flow risks of
self-funded models can still benefit from some
self-funding advantages.
+ E
mployers receive claims data that can be
evaluated to assist with plan design decisions,
cost containment, and whether it makes sense
to start to move along the self-funded spectrum.
+ O
rganizations can avoid state-imposed coverage
mandates such as fertility treatment coverage
and additional state-mandated COBRA coverage.
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Self-funded healthcare plans
Self-funded plans are those where the employer assumes the financial costs and risks of the healthcare
benefits program. Because of the higher risk, comprehensive stop-loss coverage is an essential component of
a financially sound self-funded benefits program.
ADVANTAGES
+ They allow for customization to the plan design. • A
dministration is less expensive without
ull access to claims data gives employers
+ F sacrificing a reduction in services.
complete visibility into claims drivers and trends. • T he basis for premium taxes is reduced
This enables them to make informed decisions compared to fully insured plans.
on where to target cost reductions (e.g., disease • T hey can reinvest savings in other benefit
management programs, benefit plan changes, program areas.
or stop-loss provisions) and how to structure
employee wellness programs. For instance, they ash flow advantages. Organizations hold their
+ C
can carve out coverage for diabetes management own reserve for funding plan costs in the event of
if data shows the condition is prevalent in the plan termination.
employee population. + E
mployers can work with their benefits
lans can be unbundled. Employers can unbundle
+ P consultant to evaluate and choose network
as few or as many components as makes sense options for better discounts and lower disruption,
for them to manage costs and risks. For instance, such as:
they can engage a stop-loss carrier to cede risk • Traditional PPO/POS networks
associated with high-cost claimants. Or engage
• Narrow and high-performance networks
a Pharmacy Benefits Manager (PBM) directly to
lower prescription costs. • Referenced Based Pricing (RBP) models
mployers can reduce costs while keeping
+ E • Direct provider contracting models
benefits and employee payroll contributions + O
rganizations can avoid state-imposed coverage
constant. mandates such as fertility treatment coverage
• T hey can fully capture favorable claims and additional state-mandated COBRA coverage.
experience.
• T hey also benefit from savings generated
from health and wellness initiatives.
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Self-funded healthcare plans (cont’d)
DISADVANTAGES
– O
rganizations need to be able to manage greater – A
dditional administrative responsibilities.
cost fluctuation and budget uncertainty. The Both Human Resources and finance will need to
company’s finance department needs to fund assume additional duties related to compliance,
claims weekly or even daily. If a large claim comes banking, reserving, stop-loss, and others.
in, there must be sufficient cash to float it until – T he employer’s assets are exposed to any liability
the stop-loss carrier provides reimbursement created by legal action against the self-funded
(assuming stop-loss coverage is carved out). plan.
Captives market for healthcare plans
Captives are a self-funding arrangement that allows multiple (employer) participants to share risk.
ADVANTAGES DISADVANTAGES
+ H
elps middle-market sized employers access dditional layer of complexity. Some captives
– A
self-funded plan financing. have restrictive entry and exit requirements to
+ O
ffers opportunity for additional savings via control disruption that creates pricing instability.
dividends from captive underwriting profit. – Internal collateral is at risk. To join a captive,
nables more stable renewals than traditional
+ E an employer must be willing to put up their own
stop-loss. capital.
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W H I T E PA P E R
The New Imperative for CFOs and CHROs
Exploring funding options is imperative for CFO and CHRO partnership
An organization’s financial and employee benefits objectives must be considered together to arrive at the right short-
and long-term strategies for success. This requires the Chief Financial Officer (CFO) and Chief Human Resources
Officer (CHRO) to work together to fully understand the implications of the options available when selecting or
evaluating their choice of health plan funding.
HR executives know how to consider the organization’s demographics, claims history, benefits trends, and employee
needs to design a healthcare program that contributes to their organization’s talent strategy. The CFO understands
the financial expectations and limitations of their budget, cash flow, and risk tolerance. Yet often, decisions and
budgets are determined and influence benefits strategy without these critical roles coming together to have a
deep understanding of the impact to both the bottom line and their employees. Together, they can ensure their
organization takes the deep dive necessary to understand the tradeoffs on risk versus reward across the spectrum
of options to fund healthcare benefits.
Alternative funding options are worth exploring to ensure your organization is efficiently financing your healthcare
spend. Employers should work closely with their benefits broker or consultant to address funding model options and
efficiently finance your healthcare spend in light of today’s economic headwinds. This is a great opportunity for the
CFO and CHRO to come together and balance your business objectives while optimizing your health plan for your
business now and well into the future.
Get to know us. With more than 10,000 clients managed across our National Employee Benefits Practice,
Risk Strategies delivers the high-quality, cost-effective, and compliant benefit programs
and solutions employers need and employees value.
Visit [Link] for the latest observations in employee benefits or contact us at
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The contents of this report are for general informational purposes only and Risk Strategies Company makes no
representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information
contained herein. Any recommendations contained herein are intended to provide insight based on currently available
information for consideration and should be vetted against legal and business needs before application.
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rev. January 2025