Self insurance option opens up with startup launch

Health Insurance Expense

Collective Health, from Silicon Valley, is hoping to help mid-sized employers to save money.

A new Silicon Valley Startup, Collective Health, is now claiming that it will be able to assist medium size employers in saving money through the use of self insurance, instead of paying higher premiums for group health plans from traditional insurers.

The key to the design of the program by the startup is in the software it has developed for covering workers’ costs.

According to Collective Health, it has come up with a form of software technology that will give companies the ability to pay the health costs of their employees, directly. It describes its self insurance program as a kind of “sweet spot” as companies that have anywhere from a few hundred to a few thousand employees will be able to save money through this strategy. This service is being targeted especially toward the tech sector.

Collective Health believes that self insurance helps to overcome the overpricing of traditional health plans.

Health Insurance ExpenseThe chief executive officer of the company, Ali Diab, explained that “Insurance providers make money by overpricing risk and underpaying care.” Diab’s previous business, AdMob, was purchased by Google Inc.

Larger employers are using their own arrangements to insure themselves on an increasing basis. That said, it is difficult to obtain a solid figure with regards to the actual number of businesses that have decided to provide their own health insurance.

Since the health care reform from the Affordable Care Act, it is now also becoming more commonplace to see medium sized companies making similar decisions for covering themselves. Collective Health – which is not entirely on its own in this marketplace, as firms such as Milliman and other actuarial consulting firms compete within this space – feels that it provides mid-sized businesses with a unique option due to its focus on design and its user experience.

The three actuaries at Collective Health conduct an assessment to let a company know how much it is likely to save on an annual basis if they should switch to self insurance instead of paying premiums to an insurer, using a model that is based on medical claims data. Human resource managers then use a dashboard to track to health and benefits of employees. There is even a service that allows small experiments to be run, for example, to gauge the advantages of a standing desk or of a healthy meal plan.

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