Self-Funded Plans. Presented by Insurance 4 Dallas. What Laws are Subject to Self-Funded Plans?.
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Self-Funded plans, unlike traditional health Plans, are not subject to state laws. These plans are governed by federal law through the jurisdiction of the US Department of Labor under the “Employee Retirement Income and Security Act of 1974” (ERISA).
In most cases, Self-Funded Health plans are issued through a Third Party Administrator (TPA), which manages a three prong arrangement consisting of fulfillment of benefits, monthly premium payments and claim transactions which are transparent to the Employer.
In summary, a Self-Funded Health Insurance plan is an arrangement between:
The Employer will make regular monthly premium payments to the TPA as they would normally for an insurance policy. However, premium payments will be allocated to three unique financial buckets overseen by the Third Party Administrator.
Claims Fund =
Administrative Fund +
Stop Loss Insurance +
The Employer provides Health Benefits to their employees with the Employer’s own funds, designated or accumulated via monthly premiums to their Claims Fund, one of the unique financial buckets managed by the Third Party Administrator.
Employer’s Claim Fund
In addition, money contributed to the Claim Fund’s Bucket during the preceding year is refundable, depending on how much of it was used to pay claims after individual deductibles are used.
The Employer’s risk is limited by the amount of money accumulated or targeted by their annual contributions to the Claims Fund ONLY!
Medical Bills that accumulate beyond the amount of savings in the Claims Fund, are covered by “Stop Loss Insurance” (SLI) premiums. SLI premium is one of the three unique financial buckets and absorbs all additional costs not covered by the Claims Fund.
Stop Loss Premiums
Medical Claims are paid through and managed via a Third Party Administrator, of which the insurance company has issued a contract to manage all of their Self-Funded policies. This too is one of the three unique financial buckets paid with premiums.
Third Party Administrator
All of the preceding arrangements combined reduces the overall costs of health insurance to an employer. In addition, unlike other plans issued via the Patient Protection Affordable Care Act (PPACA), these Plans may not include all the “Ten Essential Health Benefits” and are medically underwritten, which reduce costs.
In Addition, ERISA managed policies mandate Self-Funded plans not exceed the maximum costs for claims to consumers per calendar year, which is $6350 for an individual and $12,700 for a family (in-network only). This is the same mandate in the PPACA.
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John (Rick) Thornton