1. Self-Funding 101
2. A Guide to Self-Funding
This guide to self-funding provides a comprehensive guide to self-funding employee benefits. It describes the differences between insured and self-funded plans, compares the pros and cons of each, and helps you decide if self-funding is the right choice for financing your organization’s health care benefits.
“A Guide to Self-Funding” assumes that you will carry stop-loss insurance, which limits the risk your firm undertakes when choosing to self-fund.
3. Stop-Loss Insurance Employers typically carry stop-loss insurance on their self-funded health care benefit plans to reduce the risk of large individual claims or high claims for the entire plan. The employer “self-insures” claims up to the stop-loss maximum exposure, which is the dollar amount above which claims will be paid by the stop-loss carrier. There are basically two types of stop-loss insurance: individual/specific and aggregate.
Individual/Specific Stop-Loss Insurance
Specific stop-loss protects the employer against large, individual health care claims.
Aggregate Stop-Loss Insurance
Aggregate stop-loss insurance protects the employer against high total claims for all plan participants.
4. About Self-Funding What is Self-Funding?
A self-funded, or “self-insured” plan, is one in which the employer assumes partial financial risk for providing health care benefits to its employees.
The employer decides on a plan of employee benefits, which can be similar to or identical to the employer’s current fully insured plan, or the employer can create whatever benefits it desires.
The employer funds the risk up to a certain level where a Reinsurance or
Stop-Loss Insurance carrier is brought in. The Stop-Loss is designed to limit the employer’s loss to a specified amount to ensure that large, or unanticipated claims, do not upset the financial integrity of a self-funded plan. The amount of risk to be insured is a function of the employer’s size, nature of its business and tolerance for risk.
A Third Party Administrator (TPA) administers the plan. Its responsibility includes maintaining eligibility, customer service, adjudicating and paying claims, preparing claim reports, plus arranging for managed care services such as network access and case management.
5. About Self-Funding Is Self-Funding Common?
Most employers with more than 200 employees “self-insure” some or all of their health & welfare benefits. Self-Funding for employers with as few as 5 employees is also prevalent, but these employers enroll workers under a fully-insured high deductible plan unlike the larger employers.
What benefits can I Self-Fund?
What benefits should not be Self-Funded?
Any life insurance benefits, including AD&D and travel accident
Long-term disability LTD (unless coverage is for a very large group)
6. About Self-Funding Self-Funding – A Comparison to Fully-Insured Plans
Everything that is provided in a conventionally fully-insured program is duplicated in the partial self-funded plan. Everything that the insurance company does when it offers a conventionally insured program takes place in the partially self-funded program.
The difference is that with the self-funded plan the employer holds the cash needed to fund benefits, and instead of paying the fully conventional premium to the insurance company, only a portion of the conventional premium is paid to a reinsurance carrier.
The employer purchases re-insurance for protection, holds the remainder of the conventional funds (“expected” claim funds), invests them, segregates them if desired, or uses them for general business purposes until they are needed for the funding of claims.
The employer retains and keep the funds when claims do not materialize, hence making a profit.
7. About Self-Funding There are eight primary reasons employers self-fund benefits:
Cash flow advantages
Reduced insurance overhead costs (no longer pay Insurance Company stockholders)
Reduced state premium taxes
Elimination of state mandated benefits
Control and flexibility of plan design-benefits
Control of Reserves-Return of investments on reserves
Improved employee satisfaction
Transparent changes at health plan renewal
8. About Self-Funding More reasons why employers Self-Fund
Even if an employer had good experience, the insurance company will still pass on a renewal rate increase based upon the insurance company’s pool of thousands of groups. You are not truly rated based upon your claims experience and can be treated unfairly.
With Self-Funding your renewals are based on “YOUR” company’s claims experience, and it is not based on thousands of other companies that have no relation to your company or industry. You, not the insurance company, enjoy the advantage of favorable claims experience. You keep the savings.
Perceived Disadvantages of Self-Funding
Your own poor current claims experience means that the plan will be costly.
But less costly than an insured plan, as you are not paying for taxes and profit in addition to insurance coverage
Budgeting the Plan will be difficult.
Prior experience guides your financial commitment and stop loss insurance guarantees performance
Termination of the Plan may be difficult.
Stop loss coverage is structured to pick up claims incurred in, but reported after the end of each plan year
There is added fiduciary and legal responsibility.
JHC Administrators provides advice and guidance, when help is needed and Federal ERISA laws which govern self-funding are less restrictive and overbearing than state insurance regulations
9. Use of Contracted PPO Networks One important element that a TPA will include in its services to the employer is that of ensuring a host of solid arrangements for the group’s use of contracted PPO networks. This is critical for several reasons:
First, any liberal use of low cost preferred providers will allow the employer to substantially stretch its benefit dollars. Limited benefit dollars spent on covered services simply go much further when the employer is not paying “billed charges” but rather only negotiated rates after discounts.
Second, because the contracted PPO network is open, broad and widespread than all employees and dependents will have incentives to access and use preferred providers. Thus, not only will the employer group save a lot of dollars up-front but employees too will save on their out-of-pocket co-payments, coinsurance and/or deductibles.
10. United Resource Networks Products
11. Pharmaceutical Benefit Programs
With rising prescription drug costs it can be unnerving that an average employer’s prescription drug plan can be the cause of almost 25% of the cost of the company’s group health plan. Fully-Insured carriers pass along minimal prescription drug discounts to employers and keep any pharmaceutical rebates. The result is larger claims experience, which then result in higher rate increases.
Through the judicious use of Pharmaceutical Benefit Managers (PBM), a Third Party Administrator will enable its clients to receive the strongest prescription drug discounts in the country, reducing the employer’s prescription drug costs, and hence resulting in lower costs for the group health plan. Use of Pharmacy Benefit Management Experts
12. Use of Utilization Review Experts
13. How do I decide if I should self-fund some, or all, of my employee health benefits, and what stop-loss insurance is right for my plan?
Assess the volatility of claim experience for the past three years.
Obtain stop-loss quotes at several different levels.
Compare the costs and risks of the different quotes against the insured premium cost.
Weigh the self-funded plan advantages of flexibility and lower average cost versus the increased risk and associated greater responsibilities.
Choose the optimum solution based upon your analysis.
Probably the most important step you should take to assure that you make the best decision is to have an experienced professional assist you. JHC Administrators can answer your questions and assist you with your decision to self-fund or even partially self-fund your company’s health benefits plan.
JHC Administrators welcomes the opportunity to help your organization examine its plan design(s) and make recommendations for improvement.
Making The Decision to Self-Fund
14. No Chance of Winning versus HOPE!
15. Client Testimonials
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