Landing an employer contract can take a direct primary care practice to the next level, and it starts with knowing the difference between self-funded employers, who pay their own healthcare claims, and fully insured ones, who pay premiums to a carrier. Part 1 of this five-part series, built on interviews with DPC leaders and benefits administrators, explains why self-funded companies are the natural buyers of DPC.

There’s nothing that can take your direct primary care (DPC) practice to the next level like landing an employer contract, but they can seem overwhelming to negotiate. In this five-part blog series, join me as we cover the most fundamental aspects of finding, engaging, and closing deals with businesses of all sizes to get them promoting your DPC clinic as part of their employees’ healthcare.

As the basis for this exploration, I interviewed numerous expert DPC leaders who have had success with employers, combining their advice with input from experienced health benefits administrators and even some of our own Spruce market research.

In this first part, we’ll break down and explore the crucial difference between “self-funded” and “fully insured” employers and what it means for your DPC practice. The next parts will follow soon, but if you don’t want to wait, you can download our full ebook on the topic: “Secrets of Direct Primary Care: 5 Keys to Landing Employer Contracts.” Now, without further ado, the first key to landing DPC employer contracts…

Key #1: Understand the Difference Between Self-Funded and Fully Insured Employers

Whether a company’s health benefits program is “self-funded” or “fully insured” will often be the most important factor in your ability to attract the attention of its leadership, so it is critical that you understand the difference.

“Fully insured employers rarely or never see the savings [that direct care] provides. For fully insured organizations, all they’re doing is saving money for the insurance carrier,” shared Megan Freedman, executive director of the Free Market Medical Association (FMMA) and Vice President of Corporate Communications at the Kempton Group, a longtime TPA for self-funded employee benefit plans.

Most importantly, self-funded companies (also called “self-insured companies”) take on risk directly for the healthcare costs of their employees; as claims come in, they evaluate and pay them without the use of an insurance company. The administrative aspects of this type of plan are typically left to a third-party administrator (TPA), which can be either a fully independent organization or an “administrative services only” (ASO) branch within an insurance company. Crucially, self-funded employers experience their employees’ healthcare costs directly. When these costs are low, they save money, and when these costs are high, they can lose substantial amounts.

Fully insured employers, on the other hand, contract with health insurance companies to provide their employees with fixed-price plans that are both administered and funded entirely by the insurance company. This setup insulates a business from the healthcare costs of its employees, protecting it from the possible downside of expensive claims, but also preventing it from realizing any savings should its employees end up being healthier and less costly than expected. Transferring risk to an insurance company also comes at a premium, and fully insured plans cost more on average than self-funded ones.

Some small companies also offer no insurance plans at all to their employees. For our purposes, we can consider these businesses to be self-funded, since any health benefits they provide will be paid for directly out of company funds.

So why does any of this matter to you, the DPC doctor?

“Self-insured employers are at financial risk for their employees’ health issues. Fully insured employers are not. It’s all about the value you can provide,” says Megan Freedman. Ms. Freedman has worked for years in the benefits industry and is an expert on incorporating DPC options into health plans. “One of the biggest issues with helping employers see the value in direct care is that fully insured employers rarely or never see the savings it provides. For fully insured organizations, all they’re doing is saving money for the insurance carrier.”

In a nutshell, then, the way an employer pays for its employees’ health benefits (i.e., self-funded vs. fully insured) will drastically affect how its management perceives your practice’s value, and self-funded companies will see value more easily in the DPC model than fully insured organizations will. Don’t worry, though; there are many ways to show value…

Stay tuned for part two of our series, “Landing DPC Employer Contracts, Part 2: Getting Employers to See the Value of DPC!” Or, if you don’t wait to wait, get our full ebook on the topic right now: “Secrets of Direct Primary Care: 5 Keys to Landing Employer Contracts.”

Frequently Asked Questions

What is a self-funded employer?

A self-funded (or self-insured) employer pays its employees’ healthcare claims directly instead of buying a fixed-premium policy from an insurance carrier. Because every saved claim dollar stays with the company, self-funded employers have a direct financial incentive to add cost-saving arrangements like direct primary care.

Why do self-funded employers buy direct primary care?

Because every claim dollar they save stays with the company. DPC reduces downstream claims by giving employees fast access to a physician, so self-funded employers have a direct financial reason to add it.

What is a fully insured employer?

A fully insured employer pays fixed premiums to an insurance carrier, which then takes on the risk and pays the claims. Because the carrier keeps any savings, fully insured employers have less direct incentive to add cost-cutting arrangements like DPC than self-funded ones do.

How does Spruce fit into a direct primary care practice?

DPC works because members can reach their physician easily, so thousands of DPC practices run day-to-day communication on Spruce, with texting, calling, secure app-based messaging, and video visits in one place. That accessible, personal communication is a big part of what makes the model worth paying for.