WHAT IS SELF-FUNDING?
A self-insured health plan allows employers to have more financial control over their group health plan, as oppose to a traditional fully-insured plan with high premiums and a use-it or lose-it philosophy. When you self-fund, you only pay for the claims your group incurs. Self-funding is utilized by two thirds of all employers in the United States and continues to grow because of the flexibility and potential for savings.
In the traditional insurance market place employers provide employee health coverage by purchasing a set package of benefits at premiums established by the insurance company. If claims are low, the insurance company profits without any employer gain; however losses usually result in a rate increase to the employer at renewal. Self-funded plans offer employers an alternative to this pattern.
Self-funding your group benefit plan will eliminate the high costs of fully-insured premiums, which include: Profit Margins, Risk Charges, Reserves, Contingency Margins, State Regulations, Premium Taxes and Retention and Persistency Bonuses. In addition, benefit plan design will be customized to your group instead of an off-the-shelf plan from an insurance carrier.
Employers that have 50 or more employees may find self-funding to be an attractive alternative to traditional insurance coverage. The self-funded employer assumes the limited and leveraged risk of the incurred claims expenses in exchange for keeping the margins that would have been used to pay high dollar premiums to the health insurance carrier.
Stop loss protects the employer from any catastrophic expenses.
Understanding Stop Loss Insurance
Medical stop loss coverage is put in affect to limit an employer’s liability on catastrophic or high-cost claims. The general assets set aside for the self-funded health plan are insured against unforeseen risks. Medical stop loss insurance provides “Stop Loss” for individuals’ claims that are higher-than-expected (Specific Stop Loss) as well as a cap on overall medical expenses across the entire employee base (Aggregate Stop Loss).
Specific Stop Loss
The employer is responsible to fund claims for an individual only up to the specific stop loss deductible. In the event that an individual’s claims exceed the predetermined amount the reinsurance carrier would pay all claims above that threshold.
Aggregate Stop Loss
This is a pre-determined total amount for the entire group, setting a max out of pocket for the employer. This calculates the total dollar amount paid by the employer and caps the potential risk.
Types of contracts:
The most common types of contracts are 12/12 , 12/15 or a 15/12. A 12/12 contract covers the employer on a 12 month billed and incurred basis. The 12/15 contract allows for a lag on the claims billed after the 12 month covered period for an additional 3 months. The 15/12 contract allows the employer to roll in the lagging bills from the previous plan year. This is generally utilized when the previous plan year opted in for a 12/12 contact and is experiencing high utilization at year end.
How do you become Self Funded?
Besides rising insurance premiums and over utilization of group health plans, one of the biggest challenges employers face is the lack of claims experience provided to them from the fully-insured carriers. The main reason for holding this information back is insurance companies’ fear that if employers actually knew what their costs were, very few would be fully-insured. Without this information, employers are at a disadvantage when trying to figure out if a self-funded plan will work for them.
Keeping in mind that insurance companies are for-profit companies, we have worked with many employers to face this challenge by having medical questionnaires completed by their members or by moving them to a level funded plan where they can benefit from the savings and flexibility that a self funded plan can offer. Now these companies have access to monthly claim reports, flexibility and control over one of their largest expenses – their health plan.
