GUEST AUTHOR BRIAN CLEMENT: Self-Insured Medical Plans for Employers of All Sizes – A New Reality in Today’s Health Insurance Market
As a buyer of health insurance for employees, I suppose you’re faced with the annual challenge of finding the perfect balance of benefits and budget while operating in a constantly changing, imperfect system. Solutions tend to be the same – increase deductibles or pass cost increases along to employees, or both. By now you’ve learned that many employers are sailing on this same ship, waiting for the wind to change direction and usher in the cost reduction most of us have been waiting for.
Well what if the wind never changes direction? I say, why wait? Adjust the sails and seek an alternate route in a different direction.
Enter in the world of self-insuring. For years this funding method was believed to be only for large employers with hundreds if not thousands of employees. No longer is this the case. Companies with fewer than 100 employees, even fewer than 50 employees are seeking solutions on a self-funding arrangement, rather than the traditional fully-insured arrangement.
On a fully-insured arrangement, relatively speaking, the process in simple. An employer purchases a plan at a set price from a health insurance provider, the employer pays the premium on a monthly basis and the carrier pays the claims. Generally, the employer doesn’t receive data pertaining to paid claims, including types of claims, so the employer is left without knowledge of the overall health of employees.
Furthermore, on a fully-insured arrangement, the employer is paying newly levied federal premium taxes in addition to the annual trend increase of the medical insurance plan and must account for state-mandated benefits.
On a self-insured arrangement, the employer gains more control. The employer contracts with a Third Party Administrator (TPA) and pays a fixed monthly cost for:
- Administration fees
- The “stop loss” premium (the point at which the insurance carrier takes over paying for claims)
- Pre-funding future claims up to the stop loss
Self-insured arrangements offer some distinct advantages, including:
• Designing a medical plan(s) tailored to fit the needs of your company
• Detailed claim data, claim analytics and benchmarking
• Avoidance of state-mandated benefits and federal premium taxes
• Potential for return of “excess” premium, meaning, if your group has a “healthy” year, a portion of the pre-claim funding can be returned
• Fixed monthly costs
Employers usually ask “if I have an employee or dependent with high claims, say $400,000 for arguments sake, won’t we be paying these claims, thus making self-insuring a very risk y strategy”? The answer is no.
Through the pre-funding arrangement the employer pays for claims to the specific stop loss limit for any one member (employee or dependent), say $20,000. The payments toward the specific stop loss limit are applied to the aggregate stop loss limit (maximum for all members), say $100,000. The carrier pays claims beyond the specific and aggregate stop loss. In this example noted above, if the specific stop loss is set at $20,000, the employer is not liable for claims exceeding $20,000 for that member with $400,000 of claims. Additionally, the $20,000 applies to the $100,000 aggregate stop loss.
Self-insuring can pave the way to potential savings. However, it is not without challenges.
For starters, employers without claim data will have to put employees through medical underwriting, meaning employees will have to answer health history questions for each family member to be covered by the self-insured plan. Undoubtedly this will raise concerns with some employees. This process can, and should be done discretely in order to avoid HIPAA violations.
Second, an employer’s assets are exposed to legal action against the self-funded plan. Make sure a thorough risk management evaluation is conducted regarding Fiduciary Liability and Management Liability.
Lastly, a self-insuring arrangement does not exempt employers from all federal taxes under the Patient Protection and Affordable Care Act. In 2014 employers still pay an annual fee of $2.00 per average number of covered lives for the Patient Centered Outcomes Research Institute, and a $63.00 annual fee toward Transitional Reinsurance which is used to stabilize premiums in the individual market.
In summary, if you seek a health insurance option that can provide more direct control, eliminate a federal tax burden and assume some risk with the intended result of premium savings then don’t overlook a self-insuring option.
Brian Clement is a licensed insurance agent and a risk management consultant with the Ralph C. Wilson Agency in Southfield, MI. For over ten years Mr. Clement has guided employers through purchasing decisions regarding various employee benefit offerings and funding arrangements, including navigating the state and federal compliance waters of HIPAA, HI-TECH, COBRA and FMLA. Furthermore, Mr. Clement designs Professional Liability, Errors & Omissions and various Property & Casualty insurance programs to companies operating in various industries throughout the United States. Follow Mr. Clement on Twitter – @BrianJClement and on LinkedIn at www.linkedin.com/in/brianclementinsuranceadvisor