There are a multitude of insurance carriers offering employer sponsored health plans ranging from Health Maintenance Organizations, Preferred Provider Organizations and Points of Service plans.
We at The Kent International Group can offer advice and expertise to assist the employer group in selecting the plan that best suits there needs and budget.
In addition to the standard fare, we have provided outlines on this web site a guide to Self Funding of Medical Benefits.
Partially self funding employee benefits, allows the employer a greater say and infinitely more control over all aspects of their benefit program. Regardless, self funding is not a panacea. The advantages far outweigh the disadvantages. The following will outline same.
Flexible Plan design is a key feature. Self funded plans fall under the jurisdiction of the 1974 ERISA Act in which partially self funded plans are governed by Federal mandates and not State mandates. This is especially advantageous to companies operating in multiple States who do not want to offer different medical plans in each State they operate in order to satisfy each State’s mandated benefits. The only mandates that a self funded plan has to follow are Federal mandates and laws.
An obvious advantage to a partially self funded program is the opportunity to save money that otherwise would have been excess profit to the insurance carrier. A specific deductible is purchased that protects the employer from spending more than a predetermined amount on any one large individual claim. In addition, an aggregate limit is purchased that limits all the small claims under the individual limit to an amount governed by the monthly employee count of the group participants. Add the cost of administration and you are looking on average at one third of the total cost of an insured plan. These are called the “Fixed Costs”. Claims are in addition but are only paid as incurred and submitted for payment.
Self funding involves the employer sharing the risk with the insurance carrier. As the employers own funds are being utilized to pay claims, the employer has access to month by month claims data. This data allows the employer to see where the excess utilization may be occurring and make annual benefit plan adjustments as deemed necessary.
Furthermore, the employer enjoys the benefit of the insurance company’s negotiated physician and hospital payments’ schedule’s that afford deep discounts over standard repayment schedules.
Computer access for both employers and employees is becoming routine. Employers can access eligibility, claims data, coverage information, payment records and much more. Employees can access theirs and their families claims history, claims payment history, order new ID cards and access a wealth of health related information to assist in a healthy lifestyle.
The disadvantages to self funding are minimal, certainly as long as you are aware of them before the plan is implemented.
Fully insured premiums are constant month by month altering only by the amount of employees covered in any one month. The “Fixed Costs” mentioned earlier are constant changing only by the number of employees covered. The claims cost, however, fluctuates. One month can be high and another month extremely low so the employer must have the resources available to fund such fluctuations. In most cases, claims on a mature, stable, group of employees are consistent.
When aggregate stop loss insurance is purchased the insurance carrier is setting a maximum limit on all small claims under the individual specific stop loss. This aggregate is designed as a “sleep easy” so the employer knows what the maximum claim costs will be under the plan. The aggregate is calculated on a monthly basis according to the employee and dependent count and accumulates throughout the year for an annual maximum called the aggregate attachment point. The insurance carrier sets the attachment point 25% higher than the expected claims.
The aggregate is not a target to hit, the farther away you are the better the claims experience under the plan. If the aggregate is hit, and subsequently exceeded, the employer will not receive a refund of the amount in excess of the aggregate attachment point until after the plan year ends and a claims audit has been conducted by the insurance carrier. This refund is normally delivered several months after policy year end.
A self funded plan should be entered into with the complete understanding that the decision to self fund is made for the long term, at least three years. When ever a plan terminates the employer is obligated to pay administration fees and run-off claims. These are claims that are incurred prior to the policy ending or terminating but have yet to be submitted for claims payment. If an employer switched back to a fully insured plan they would be paying the new fully insured premium as well as the run-off claims and administration.
The individual stop loss (Specific) and the aggregate stop loss are both purchased on an “Incurred and Paid” 12/12 basis for the first year of the plan. This covers claims incurred and paid in the policy period which equates to nine months worth of claims as claims incurred but not submitted for payment at the end of the policy period would fall into the following year.
The second year both stop loss contracts are renewed on a “Paid” basis. This broader contract pays claims incurred at any time in the first year and the second year but submitted for payment in the second year thereby picking up the run-off claims from the first year. Premiums for the second year contracts are higher but afford broader coverage.