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By Christina Farr
Reuters

The founders of Collective Health, a Silicon Valley startup, say they\’re able to help employers cut costs by self-insuring as an alternative to paying premiums to the insurance coverage company.

Collective Health has continued to develop software that will help companies pay workers’ health costs directly. Collective Health describes its “sweet spot” as companies with a bit of hundred or even a few thousand employees, typically inside the tech sector.

“Insurance vendors generate profits by overpricing risk and underpaying care,” said Collective Health’s Top dog Ali Diab, whose previous company AdMobwas acquired by Google Inc.

Self-insurance arrangements are increasingly commonplace among larger employers, whilst it is hard to understand the number of firms are making the transition. During the wake in the Affordable Care Act, self-insurance also has become a stylish selection for mid-sized companies.

Collective Health, which competes with actuarial consulting firms such as Milliman, claims its differentiating factor is its target buyer and design. Collective Health’s three actuaries assess what amount publication rack about to save every year by switching into a self-insurance model dependant on medical claims data.

Once Collective Health has transitioned this company into a self-insurance model – at no additional cost, it claims – human resources managers start using a dashboard to monitor employees’ health insurance benefits. Coordinators can established experiments to find out if a completely new benefit, like a healthy diet plan or standing desk option, is generating a difference on health and fitness and wellness.

Employers perform closely with Collective Health to create flexible plans and canopy unusual benefits like fertility treatment or acupuncture. Diab describes this being a competitive advantage within the war for talent that\’s raging in Silicon Valley.

To alleviate huge costs from unexpected claims, employers subscribe to an exceptional type of “stop loss” insurance. Collective Health says it can help customers locate the ideal policy.

The self-insurance trend could be growing, but it\’s not without its critics.

Advocates of self-funding which include Collective Health are convinced that companies may help to 20 to 25 %. However, some experts have warned that savings are generally much less.

In addition, insurance regulators fear that commercial insurers along with the insurance exchange are going to be still having more and more older, sicker people.

Young companies, flocking to self-insurance, are recognized for hiring twentysomething, healthy employees. In Silicon Valley, recently published diversity reports from firms including Twitter Inc show personnel are also disproportionately male.

Collective Health declined to name its customers.

Diab started the company in 2013 after he recovered from a serious event surgery. Diab said he faced mountains of paperwork from his insurance carrier, who had declined to fund his surgical and hospital charges.

He create Collective Health alongside cofounder Rajaie Batniji, a Stanford University-trained physician. The pair raised an initial round of funding from a several Silicon Valley venture firms, including Founders Fund additionally, the Social+Capital Partnership.

The clients are currently enrolling companies for a coverage start date of January 2015.