Are You Managing Your Health Plan or Is Your Health Plan Managing You?

All group medical benefit plans fall into one of two categories: self-funded or insured. The choice of one over the other should not be made arbitrarily. Each type carries its own set of administrative rules and legal constraints.

Employee Medical Benefits: Self-Funded vs. Insured

All group medical benefit plans fall into one of two categories: self-funded or insured. The choice of one over the other should not be made arbitrarily. Each type carries its own set of administrative rules and legal constraints.

What is Self Funding?

Under an insured health benefit plan, an insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid to the carrier by the employer. Employers with self-funded (or self-insured) plans retain the risk of paying for their employees’ health care themselves, either from a trust or directly from corporate funds.

Most large employers self-insure some or all of their employee health benefits. Many small company’s also self-fund, but these employers require greater stop-loss insurance protection than larger employers (stop-loss insurance is discussed in greater detail later).

The risk assumed in either situation is the chance that employees will become ill and require costly treatment. When employees have few claims and few expensive illnesses, the self-funded employer realizes an immediate positive impact on overall health care costs. Conversely, if the employee group has unfavorable claims experience, a self-funded employer would incur an immediate expense beyond what may have been expected. Insured plans have a more predictable cost for the year; however, large employee claims costs from one year can affect future premium amounts.

6 Ways A Partially Self-Funded Health Plan Will Benefit You:
1. Pay Only for Healthcare Your Members Consume
Partially Self-Funded employers pay for only the healthcare claims their members consume, a low stop-loss insurance premium for catastrophic claim coverage, and an administrative fee to a third party administrator who will administer their program. For comparison purposes, fully insured employers pay insurance premiums that are primarily based on the underlying claims experience of a much larger pool of employers that are also insured by the same health insurance provider. Healthy companies within these pools are likely paying far more than they ought to be paying since they are not rewarded for their favorable claims experience. If they were partially Self-Funded, they would pay for only the healthcare their members consume, a small stop-loss insurance premium, and an administrative fee to their Third Party Administrator.
2. Flexibility to Design Healthcare Plan Your Members Want
Employers have the flexibility to design the plan exactly the way they want it, limited only by ERISA requirements. This flexibility applies to both medical and prescription coverage.
3. Access to Detailed Utilization & Claims Information
Transparency into claims data enables employers to have full access to their detailed utilization and claims information; allowing them to make effective decisions in real time to increase plan efficiency and lower claims. This gives them the ability to see what conditions or utilization patterns are driving the costs; and implement specific strategies to target those cost drivers reducing the employers claim exposure and overall improving the bottom line.

EXAMPLE:MRI utilization at hospital-based facilities is too high, so the Partially Self-Funded employer provides incentives (possibly lower copay or deductible,) to employees if they obtain MRI’s at a local, independently owned facility, which significantly lowers the cost of the MRI.

4. Reduce Healthcare Costs
Since employers pay for only the healthcare their members consume, population health management programs with high levels of member engagement can have a real, meaningful impact on claim costs since healthier people consume less healthcare.
5. Transparent Data
Transparent data allows for micromanagement of that data including the following possible cost-containment strategies:

• Claim audits: It has been proven that most hospital bills contain errors. Hospital charges typically represent the majority of incurred claims and since most hospital bills contain errors or duplicate charges, auditing those bills before paying them is a great way for employers to save money

• Steering members to high quality/low cost providers: Similar to manufacturing, facilities that perform the most of a particular procedure tend to do it better and cheaper than facilities that don’t perform as many procedures. Members should be utilizing these higher quality/ lower cost providers as they will reduce claim dollars and improve outcomes
6. Elimination of a Large Portion of the State-Charged Premium Tax
Elimination of a large portion of the state charged Premium Tax. Fully insured plans pay a premium tax on 100% of their healthcare costs since all of the costs are in the form of insurance premiums. Partially Self-Funded employers only pay a small percentage of their total costs in the form of Stop-Loss insurance premiums, which is charged a premium tax, but this represents far less in premium tax than a comparable fully insured program.
How Partially Self-Funded Employers Protect from Claim Risk

There are THREE TYPES OF CLAIM RISKS that Self-Funded employers must consider. Here are those risks followed by how most Partially Self-Funded employers manage those risks:
1. What if a member of the health plan has a catastrophically costly claim?
What if a member of the health plan has a catastrophically costly claim? Self-Funded employers purchase Specific Stop-Loss insurance. These policies protect the employer from high claims incurred by one specific member. The employer gets to choose a claims threshold that they are willing to pay up to.


EXAMPLE:
The employer may be willing to pay the first $75,000 of claims on any one specific member (less any applicable cost sharing that the member is responsible for). The Specific Stop-Loss carrier would then pay all claims over $75,000, even if the total claim was $1,000,000 since these types of policies offer unlimited benefits. The employer is only responsible for the claims under the Specific Stop-Loss Deductible, which in this example was set at $75,000.

2. What if none of the members have a catastrophic claim but many of the members have moderately high claims?
What if none of the members have a catastrophic claim but many of the members have moderately high claims? Self-Funded employers also purchase Aggregate Stop-Loss insurance. This policy works in tandem with the Specific Stop-Loss policy and is always issued by the same Stop-Loss insurance company. This policy works by aggregating all of the claims under the Specific Stop-Loss Deductible that are incurred by each member and then provides what is known as an Aggregate Stop-Loss Deductible (also known as an Attachment Point). Once total claims from all members (only claims under $75,000 in this example,) exceed the Aggregate Stop-Loss Deductible, then the Aggregate Stop-Loss policy kicks in and begins paying all of the claims under $75,000 per member for the remainder of the plan year. Claims over $75,000 per member are always going to be paid by the Specific Stop-Loss policy. The employer is only liable to pay claims up to $75,000 per member and only up to the total amount indicated by the Aggregate Stop-Loss Deductible (the attachment point).
3. Who continues to pay claims if the Partially Self-Funded plan is terminated?
Who continues to pay claims if the Partially Self-Funded plan is terminated? Simply put, the employer is responsible for paying claims that are incurred during the Self-Funded plan year, even if the medical provider submits them for payment after the Partially Self-Funded plan is terminated. Most Self-Funded employers make sure that their Specific and Aggregate Stop-Loss policies provide adequate protection after the plan terminates. This protection is not automatically built in to stop-loss policies as there are premium costs associated with offering protection after a plan terminates. We’ll consult with you to determine what deductible levels are appropriate for both the Specific and Aggregate Stop-Loss policies and how much continued protection is needed in the event the Self-Funded plan is terminated.
Self-Funding by Industry
Transportation/Communications/Utilities 80%
Manufacturing 68%
State/Local Government 67%
Finance 64%
Retail 63%
Healthcare 60%
Wholesale 51%
Agriculture/Construction 43%
Kaiser/HRET Survey of Employer Sponsored Benefits 2016