An Attractive Alternative For Employers Seeking More Control

Self funding could be the right solution for you and for clients who are making benefit decisions a midst health care reform. But it can be a challenge to present self-funding to employers who are not familiar with this approach. It is important to demonstrate how self-insurance can help the employer control the plan design and the financial impact of providing health coverage. the added flexibility in plan design, exemptions from state-mandates, and the increased control that comes with owning all claims data and reporting. The number of private sector employees in self-funded plans has increased nearly 20% over the past decade, according to a recent study by the Employee Benefit Research Institute. In 2011, self-funded plans covered 58.5% of private sector employees. Self-funding has become even more attractive due to Affordable Care Act (ACA) regulations, which could increase costs for fully insured plans with increased fees and additional assessments.


Which Groups Should Consider Self-Funding? 

Since not all groups are good candidates for self-funding, it’s important to recognize the appropriate attributes. The group should have a steady employee population, more than 100 employees, and stable claim experience. If little or no claim data is available, another good indicator would be consistently low renewal increases or increases below 10% year-over-year. Fully insured coverage remains the best option for smaller groups with a known large-claim participant (more than $500,000 in claims per year) unless that risk improves. Many stop-loss carriers will laser (set a higher coverage level) for a known large claimant in the first year of coverage and then provide non-laser renewals, which is important information to determine upfront. Self-funding can be a solid alternative when a group wants one health plan for its multi-state locations. But, in order to self-fund properly, the group must be able to handle the cash flow fluctuations that come with paying its own claims. And the group needs to be willing to commit to selffunding long enough to see its positive effects, which is about three years. There are some important considerations when transitioning to self-funding. The group must not only select a plan design or designs, but also the network and claim administrator as well as cost containment and wellness programs.


The Added Protection of Stop-Loss Coverage

As reinsurance for self-funding, stoploss insurance is designed to pay for catastrophic claims that exceed the employer’s pre-determined level of risk tolerance. Stop-loss insurance can help address the employer’s concern about the financial exposure of the self-funded plan. Coverage is always tied to an individual’s medical claims (known as “specific coverage”). High-dollar claims from individual employees drive the majority of a group’s claims variation. Employers use stop loss to protect against large, unforeseen claims. The employer’s stop-loss contract identifies the level of claims spending that will occur before stop-loss coverage begins to reimburse claims (known as the “attachment point.”) Aggregate stop-loss coverage can be added to protect the employer from large claims. This coverage pays claims, in aggregate, once a specified level has been reached. Specific and aggregate coverage can be implemented together for broad coverage. Various riders and options can further protect the employer, including advance funding, gap less or bridge renewals, and two-year rate caps. These programs allow you to tailor coverage to the employer’s risk tolerance. To help protect the employer, brokers should look for a stop-loss carrier that has an unlimited maximum and coverage that mirrors the underlying plan of insurance. 

The Impact of Health Care Reform 

Beginning in 2014, health care reform mandates will assess the following fees affecting fully insured groups, self-funded groups, and individuals in the exchange: a Patient Centered Outcomes Research Institute fee, a reinsurance fee, a health insurance tax, and an exchange fee. Self-funded plans are expected to experience the least impact. The assessable taxes vary by coverage type, by year, and by other factors, creating new complexities for plan advisors, group decision makers, administrators, and brokers. As your groups turn to you for guidance in this new world of health benefit coverage, help them understand their options. Self-insurance can be an excellent solution for a variety of employers, especially those that want to gain more control of their benefit program in times of uncertainty and change. As you work to determine the best solution for each client, know the group’s options, conditions, and suitability because being informed is the most important part of the decision-making process for brokers and their groups.


by. Sharon Aquino and Stephen Miller