Last Updated 5/29/2025
Hospitals must consider not only cash flow planning but also cost reimbursement impact of expenses. Wages and Fringe expense on average make up over 50% of Operating Costs, this percentage increases as the healthcare worker shortage drives up the cost to recruit and retain staff. Trimming the cost of personnel to the point of profitability by staff reductions is not feasible in the current environment when patient safety is considered. It is proposed that there is an area of opportunity through selecting appropriate benefit solutions. Using a self insurance platform can reduce cash outflow burden while still offering benefits that will retain employees.
Wintergreen evaluated the results achieved by one critical access hospital in Upstate New York that managed to generate significant savings through transitioning from a fully insured platform to a self insurance model that leverages a domestic network. The domestic network concept is a unique competitive advance for hospitals as providers of services.
A Critical Access Hospital in rural New York was reviewed for the cost savings of switching to a Trust based Self-Insured Model. Year over year comparison health insurance per FTE was used. As much as 42% was saved per FTE with an average of 36% per FTE. In our case study, an over $600K savings versus prior year cost was saved on health insurance for a 25-bed critical access hospital. It's important to consider the additional quantitative and qualitative factors which are not considered in the health insurance per FTE savings.
Staff satisfaction: A self insurance model leveraging a domestic network can allow employees to receive care for little to no out-of-pocket cost.
Service line gaps: A self insurance model inherently will feed data of the services which are lacking within the facility. These will show as adjudicated claims through the third-party administrator and allow for a simplified review of those services for which community demand is likely to mirror employee demand but are not offered currently.
Cash flow control: Selecting when and how to fund the trust allows for better cash flow control.
Assessments: In standard insurance cases even as employees receive services on campus cash flows out to the insurance company and then back into the facility. Though this seems like a $1 for $1 transaction it is not, cash receipt assessments and other transactional expenses must be paid on these received dollars thereby disguising expenses attributable to health insurance costs.
While savings over the base year are an important point of measure, the actual cost savings are better measured against the cost of fully insured renewals. For this case study, the cost increase for 2021 was know as the hospital quoted maintain the existing platform. For 2022 and 2023, Wintergreen partnered with United Professional Benefits to obtain the median cost increase experienced by hospitals in the central New York corridor and projected the 2021 fully insured cost forward utilizing these increases.
Annual fully insured increases, both known and assumed are below:
2021: 20% increase
2022: 18.5% increase (assumed)
2023: 23% increase (assumed)
Wintergreen adjusted annual costs to January 2021 FTE levels to eliminate any bias caused by changes in employee level for both the fully insured and self-insured costs for 2021, 2022, and 2023.
2023 costs for the fully insured platform are assumed to be at maximum potential liability. Wintergreen will update this study once actual savings are known.
The three-year savings achieve by this critical access hospital are expected to total nearly $2.5 million by the end of 2023. Upon investigation, it was discovered that the decline in savings in 2022 resulted from a change in Pharmacy Benefit Manager (PBM) that resulted in significant cost increases. For the 2023 plan year, the hospital reverted to the PBM used in 2021 and expects cost to return to normalized rates.
| 2021 | 2022* | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| Fully Insured Cost | $1,906,906 | $2,259,684 | $2,779,411 | $3,168,528.54 | $3,786,395.61 |
| Self Insured Cost | $985,686 | $1,804,570 | $1,692,717 | $1,785,694 | $2,039,231 |
| Savings | $921,221 | $455,114 | $1,086,693 | $1,382,833 | $1,747,163 |
| Percent Saved | 48% | 20% | 39% | 44% | 46% |
As can be seen in the table above, the lowest savings realized by the hospital over the three-year period was 20%. The savings noted above does not account for additional savings from the New York State Cash Receipts Assessment generated by the domestic network as the hospital did not have a way to model potential adjudication of these claims.
If the funding of the trust results in the average of the prior two years surplus levels, 2023 self-insurance actual costs will be reduced by $400,000
An initial trust is set up, the funding of this trust is flexible to allow for cash planning needs of the facility.
Stop loss coverage within the plan limits exposure for any claims which are unable to be controlled by containing the service within the domestic network. Unlike traditional self-insured programs, the trust allows for exact budgeting of the maximum expense a hospital will face to eliminate the risk of shock claims creating major liabilities.
Claim Adjudication – Claims are sent as $0 claims i.e., Informational Only. Charges are entered but then removed off in a full adjudication process, causing a net $0 revenue recorded on the financial statements.
A domestic network was be set up to increase the benefits received by staff. This means ability to have a discount at not just the local employing facility but at other facilities which are members within the network. This may contain members which are related legally or completely unrelated.
Wintergreen noted that although this was a significant financial success, interviews of staff noted that several opportunities for future savings improvement exist.
It was noted that there is currently no participation by regional tertiary care hospitals in the extended domestic network. This represents both a strategic and cost control opportunity. If the critical access hospital can establish a relationship with a tertiary partner and can negotiate a cost-based rate, the critical access hospital can reduce costs further. Additionally, this represents an opportunity for the tertiary care hospital to establish deeper relationships with employees at all levels of the critical access hospital, which may in turn lead to a larger clinical relationship based on familiarity.
A health and wellness incentive program could be set up to increase the active claims management capabilities. Employees could opt into a program designed to proactively catch potential "shock claims". These high-cost claimants on average utilize between 55 and 60 percent of the annual claims spend for a hospital. By incentivizing employees with lower premiums to go on the health plan the hospital could create more savings through early detection.
The hospital can improve upon active management by partnering with the broker and third-party administrator to search claims data for services going out of the domestic network and attempt to intervene where appropriate. It was noted through interview that this is currently a passive process.