Is
Self Funding The Answer?
As employers fight today's spiraling health care costs, many have undertaken to self-fund their health benefit plans so that they may take control of their financial contributions to the plan and take advantage of ERISA protection from a burdensome and complex array of state insurance laws.
The most popular form of self-funded health plans are Partially Self-Funded plans. Through this process, the employer is provided with reinsurance coverage that protects against large claims and catastrophic losses.
If you are contemplating self-funding for your company, you shouldconsider long-range planning, plan design, administration, investment of funds, plan documentation, etc.
There are two types of self-funded health plans.
Partially self-funded health plan: The employer assumes a portion of the risk for providing health care benefits to his or her employees and usually contracts with a third party administrator to provide services.
Fully self-funded health plan: The employer assumes all of the risk for providing health care benefits to his or her employees and usually contracts with a third party administrator to provide services.
FAQ's
about Self-Funded health plans
| Why
should I self-fund my health plan? |
| • |
Employers have complete flexibility in customizing the health plan to meet their cost saving requirements and their employees' needs. |
| • |
Excess-risk
coverage is available to minimize the employers risk. |
| • |
The plan is governed by federal legislation, and avoids most state mandated benefits ie. mental health. |
| • |
Avoid state insurance premium taxes, thus again, lowering costs. |
| • |
The employer's cost for the benefit plan is totally dictated by their claim experience, rather than the experience of a pool or insurance carrier's book of business. |
| • |
The
employer's cost for the benefit plan is totally dictated
by their claim experience, rather than the experience
of a pool or insurance carrier's book of business. |
| • |
Self-funded plans pay claims as they occur. |
Back
To Top
| What
are the disadvantages of self-funding? |
| • |
Self-funded
plans pose a much greater risk for small employers
(fewer than 250 employees)
because of the high cost of reinsurance for high risk claims
. |
| • |
Self-funded
plans may exact a heavy toll in highly specialized
administrative functions. |
| • |
Self-funding
exposes you to serious risk of catastrophic individual
claims or unexpectedly high aggregate claims. |
Back
To Top
How does self-funded plans work?
The employer opens a bank account that the insurer uses to pay claims. Each time a claim is paid the employer funds the account for the amount of the payment. Generally a company will bank a percentage of money per employee based on the amount they historically have paid out in monthly claims. They also normally add a little extra to pay for reinsurance, a policy that covers the company against catastrophic claims. If actual claims exceed the protected amount, the insurer pays for this excess.
During the first year of self-funding, an employer usually pays for only nine to ten months of claims. This improved cash flow can be used to the employer's advantage. Another advantage is that an employer only pays benefits based on his employees' histories, not someone else's employees. Companies can either manage their own plans internally, or hire a third party administrator to do it for them.
Back
To Top
Where
do my premium dollars go?
Under self-funded plans, roughly 75 percent of an employer's premium goes toward paying claims and the remaining amount goes toward administering the plan and profits. In contrast, employers that have fully-funded plans see only 70 percent of their dollars go toward benefits, while the remaining 30 percent is claimed by the insurance company for administrative costs and profit.
Back
To Top
Do I have to redesign my existing health plan?
No,
not at all. Self-funding does not require a change in the
existing group coverages you offer your employees.
Back
To Top
What is stop-loss-risk coverage?
Stop-loss-risk coverage protects the employer against unforeseen catastrophic claims that would place undue financial burdens on the employer. There are two types of coverage:
Specific stop-loss: Places a cap on your liability for any single claim. This type of coverage insures against a single catastrophic claim that exceeds a dollar limit chosen by the employer and agreed to by the excess-risk carrier.
For example, specific coverage would come into play if one of the covered participants was in a catastrophic accident and had claims that exceeded the agreed upon dollar limit. In this case, the specific coverage would reimburse the employer for the covered expenses beyond that dollar limit.
Aggregate stop-loss: Sets a limit to your total monthly or annual exposure for all claims. Aggregate coverage insures against all the claims exceeding a specific dollar limit chosen by the employer and agreed to by the excess-risk carrier. If all the claims payable exceed the agreed upon dollar limit, aggregate coverage would reimburse the employer for the excess.
Back
To Top
How do payroll deductions work?
Any payments made by employees for their coverage or coverage for their dependents are still handled through the employer's payroll department. However, instead of being sent to the insurance company as premiums, they are held by the employer until such time as claims become due and payable.
Back
To Top
What is a 12/12 contract?
A
12/12 contract is a contract that states claims have to
be incurred and paid within twelve months.
Back
To Top
What
is a 12/15 contract?
A
12/15 contract is a contract that states claims had to be
incurred within twelve months, but paid within fifteen months.
Back
To Top
To
what laws must a self-funded plan comply?
The self-funded plan comes under all relevant federal laws:
Employee retirement Income Security Act (ERISA), Consolidated Omnibus Budget Reconciliation Act (COBRA), the Americans with Disabilities Act (ADA), the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Civil Rights Act, and various budget reconciliation acts such as Tax Equity and Fiscal Responsibility Act (TEFRA), Deficit Reduction Act (DEFRA), and Economic Recovery Tax Act (ERTA).
Back
To Top
Will
my life insurance coverages be affected by self-funding
my health plan?
No.
Your life insurance and other benefit plans are completely
separate from your health plan. Your life insurance coverages
will not be affected.
Back
To Top
Who will take the place of the insurance company to administer
the plan?
A
self-funded employer can either administer the plan himself,
convert his present "insured" arrangement to an
Administrative Services Only (ASO) arrangement with his
present insurance company, or have an independent Third-Party
Administrator (TPA) administer the plan.
Back
To Top
What
is a TPA?
A
TPA (Third Party Administrator) is a company that specializes
in administering self-funded plans.
Back
To Top
What is an ASO?
Administrative Services Only (ASO) arrangements are with the present insurance company. The insurance carrier administers the plan for the employer.
Back
To Top
What are the advantages in using a TPA as opposed to an
ASO arrangement with an insurance company?
The only business of a TPA is the administration of benefit plans, not insuring groups. Insurance companies offer both arrangements. Insurers who offer ASO contracts may or may not provide the level of flexibility desired. Both should be considered however. Check price, service, staff, etc. Back
To Top
| What
services are offered by a TPA or an ASO? |
| • |
Plan
Design consulting |
| • |
Cafeteria
Plan Design |
| • |
Contracting
for excess-risk coverage |
| • |
Claims
Administration |
| • |
Contracting
with utilization review/managed care companies |
| • |
Assistance
in completing government forms - 5500 series |
| • |
Assistance
in writing and printing of SPD booklets an plan documents
for counsel review/approval |
| • |
Employee
communication programs |
| • |
COBRA
compliance assistance |
| • |
Client
reports |
| • |
Record
keeping |
Back
To Top
For more information about self-funding, please e-mail or
contact PAI at (407) 422-6575. We value
your ideas & suggestions.
Back
To Top
|
