Case Study: Paying Employee Health Claims Out-of-Pocket
John Charles Schmitt II, who heads up Plans for Professionals, a 300-person life insurance firm in Orange, Connecticut, used to work with Connecticut Blue Cross and Blue Shield to cover his employee health insurance costs.
But as premiums rose and new healthcare guidelines started to come into effect, even Schmitt—who played ten football seasons with the Jets, won the 1969 Super Bowl with quarterback Joe Namath and had 16 operations due to football injuries—became nervous. "Our experience was tough. I didn't like it. We were just a number," he says.
What's more, when Schmitt's young grandson, John Charles IV or "Charlie"—who was covered under Plans for Professional's medical policy because his father is a Vice President there—battled leukemia from 2004 to 2010, Schmitt saw millions of dollars in claims pile up. He realized his company's health insurance package had to change.
In April 2010, Schmitt switched Plans for Professionals, which he founded in 1971 because he needed a "real" job (his first football contract was for $8,500 a year), to a self-funded plan. (Self-funding is when individual health claims are paid out-of-pocket instead of the monthly fixed premium to a health insurance carrier.)
Dig Deeper: Should You Self-Fund? Here Are the Pros and Cons
Schmitt chose health plan administrator MagnaCare, which he had heard of through his trade union clients. Today, he lauds the way MagnaCare's self-funded plan has helped get the company's claims under control without any decrease in benefits to employees. "We've seen a decrease in costs and better management of what we're paying," says Schmitt. He attributes that to understanding claims; MagnaCare staffers come in on a monthly basis to explain payouts and opportunities to save money.
Despite having to pay out various fees (versus one insurance premium) for plan administration, stop-loss insurance, and monthly claims, Schmitt says that since switching to the self-funded plan the company has seen annual health insurance savings between 15 and 20 percent.
"I'm happy. My people are very happy," he says.
Best of all: Schmitt's grandson Charlie has been in remission for more than a year.