Self-Funding: To Bundle or Unbundle
March 30, 2021

In my household, I do the majority of the cooking. In tandem, I prefer to do the majority of the grocery shopping. As I've gained experience, both as a cook and a shopper, I've fallen into a few tendencies and preferences. Most notably, where I shop. On one hand I could get all the ingredients and products from a large grocery chain in my area. On the other hand, I could go to several specialty shops to purchase specific items.

I tend to do some combination. I go to the large chain for items I don't value highly or that are more utilitarian to gain the better pricing. I frequent several specialty stores to purchase those items I'm more discerning on a rotation. For example, I prefer the value to cuts of meat from a specialty butcher block over meat in cellophane at the grocery store. The trade off may be slightly higher cost for those items and less convenience compared to the one-stop-shop of a large grocer.

Is bundling my grocery shopping better than unbundling?

The question really is, "what do you prioritize and what are you trying to accomplish"?

A similar fork in the road exists in building a successful benefits strategy when evaluating self-funding health insurance. On one hand, employers can self-fund with a large commercial insurance carrier by entering into a Administrative Services Contract (ASC) where the contract is with the commercial carrier and they handle all of the internal or external relationships (one-stop-shop). Or, in tandem with the broker, the employer can engage the individual vendor-partners and finding those with the shared priorities as the employer (best-of-breed). 

Similar to the shopping analogy, pros and cons exist down either path. Convenience and lower aggregate fees are often a benefit of the single purchasing arrangement. High specialization and customization are often benefits to the best-of-breed option. One note of caution: these services represent fixed costs of a benefit plan, which typically comprises 25% of the spend. While that is significant and important, the real meat on the bone (yes, reference-pun intended) is the variable, or claims, costs. That's where all of the vendor-partners should be laser-focused. 

Questions to ask yourself and team:
- what is your general tendency towards best-of-breed vs one-stop-shop in other areas of your business?
- what is your risk tolerance or the cost-benefit?
- which path keeps focus on variable cost?
- how does the arrangement impact the employee-users? 
- what is the long-term goal?
- how experienced or confident are you, or your team, with navigating vendor-relationships?
- what is your appetite to dig in and understand the function of individual services?
- do you prefer to see how the sausage is made?

Either path can work when "success" is defined by the preference of the leaders and company first. The relationship with the broker quite often can be a pivot point towards reaching success. Frequent and open dialogue sets the stage to fitting the right solution to the employer, leadership, and company culture.

Topics: Health Finance Self-Funded Health Insurance Self-Funded Insurance Self-Funding Employee Health
Eric Hannah

Written by Eric Hannah

Eric is an employee benefits advisor at Olivier VanDyk Insurance and a catalyst for change. Through a multi-faceted, two-decade healthcare career, he developed a unique perspective on personal well-being, healthcare navigation and insurance systems. This experience inspired Eric to introduce an innovative approach to employee benefits – putting employers and employees in charge of their own care and spend. Eric believes that employee benefits should be a tool to achieve the optimal employee experience. Today, he helps forward-thinking business leaders develop strategies that create value.