With the rising costs of health care, employers are looking for effective ways to manage the cost of benefit plans for their employees—searching for the balance of quality medical care and managing the costs to the company and to the individual. With a self-funded health plan, employers assume the control associated with health care costs in exchange for many significant financial benefits and more choice in what their health plan actually offers. Understanding the difference between a fully insured health plan and the self-funding plan will help you know if this balance of self-funding is right for you and your company.
Why are 61% of U.S. employees enrolled in self-funded health plans? Discover four key reasons in this short video.
You have a choice. Tailor and customize your benefits plan to meet the needs of your employees. This is not a one-size-fits-all plan where you pay for some benefits that no one will ever use.
Improve your cash flow by paying only for claims that are actually incurred. With a fully funded plan, you pay the full premium regardless of actual claims. Reserved amounts are also included in these premiums to cover unexpected claims. However, if these claims never materialize, you never receive a refund. With self-funding, if your claims are lower than anticipated, you keep the savings.
In a self-funded plan, you will receive reporting that details exactly where your money is going. In fully insured plans with fixed premiums, you are paying for a blending of services, some of which you may never need.
Self-funded reporting helps employers understand how to make better decisions about their health care plan. Each year, a more customized plan can be created for the needs of your employee population.
Stop loss insurance ensures protection from large claims. Longstanding relationships with stop loss partners provide excellent coverage and swift reimbursement (usually six business days). All of our carriers have an A or A+ rating.
The federal Employee Retirement Income Security Act (ERISA) law sets standards of conduct for those who manage an employee benefits plan and its assets (called fiduciaries). ERISA offers self-funded plans the advantage of not being controlled by state insurance regulations.
A health plan must have at least one fiduciary (a person or entity) named in the plan document as having control over the plan’s operation. Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of the plan’s participants. The U.S. Department of Labor’s summary of fiduciary responsibilities include:
Acting solely in the interest of plan participants
Carrying out fiduciary duties prudently
Following the plan document (unless inconsistent with ERISA)
Holding plan assets in trust
Paying only reasonable plan expenses
This is a partner retained to act on your behalf in the creation and administration of the health plan. As an experienced TPA, MedCost Benefit Services offers expert knowledge of best practices in self-funding to ensure that you establish proper fiduciary controls and set up your plan documents and processes to comply with all applicable laws and regulations governing employer benefits programs.
Stop loss coverage should not be viewed as a commodity where price is the only variable. It has many nuances with significant variation between the contracts offered by different stop loss carriers. This can have a dramatic effect on how or even whether a claim is covered under stop loss. Without a clear understanding of contract terms, an employer could face unexpected exclusions or claim denials. The ideal policy will have limited exclusions or better yet, mirror the health plan’s summary plan description (SPD). If a carrier is offering premium rates below other markets, there is a reason. A self-funded health plan’s worst-case scenario:
An employer places their stop loss coverage with a carrier that offers premium rates well below other markets and experiences a claim denial for a $700,000 heart transplant due to an “experimental” treatment exclusion. Under the medical plan, the procedure was not defined as an experimental treatment. However, because the stop loss carrier included a definition of experimental treatment within the policy that differed from the medical plan, stop loss coverage for the claim is denied.
Disclosure is a common process in the stop loss marketplace whereby a carrier requires completion of a disclosure form identifying all known and emerging claims. Claimants not properly disclosed may result in unexpected claim liability in the form of claim reductions or denials. Required information typically includes diagnosis (including all individuals who may not have large claims today, but have a “trigger” diagnosis), current/planned treatment patterns, prognosis and a signature of an officer of the company.
Typically, the TPA will draft a plan document and SPD for review. These documents are required by ERISA and clearly describe the benefits offered to employees and their dependents. The employer (plan sponsor) should review the document carefully to verify that it accurately reflects the intentions of the plan.
Self-funded plans are subject to regulations under the Health Insurance Portability and Accountability Act (HIPAA). It is important that an employer that sponsors a self-funded health plan have procedures in place to safeguard the protected health information (PHI) of the plan’s participants. The first step is to appoint a HIPAA privacy officer, the individual who will enforce HIPAA policies. The employer’s benefits advisor (broker) or the TPA can usually assist with setting up and implementing these policies.
Why establish a separate formal trust for group health plan assets? If the money is not in a separate trust, it is at risk. Even with the best intentions of the employer and TPA, if it is held in an employer’s general assets or even designated checking account (or in claims-paying accounts of the TPA), the money could be spent, allocated or frozen in a lawsuit. These things happen with surprising frequency, resulting in a breach of fiduciary duty that could mean jail time. A significant amount of the health plan’s money is now composed of withholdings from employees’ paychecks, COBRA and dependent contributions, so some or all of it is not the employer’s or TPA’s money to hold. The Department of Labor would view it as if you took money out of the employee’s wallet and put it into yours for “safekeeping,” and they would likely prosecute that as a criminal (jailable) offense.
As an overall sound business practice, a reserve should be established and maintained to accommodate monthly claims fluctuations, cover “incurred but not reported” (IBNR) claims and prepare for potential liability from new federal legislation (e.g., COBRA, Medicare, veterans’ benefits, HIPAA, Mental Health Parity Act, ACA, etc.). The premium equivalent rates included in the MedCost Benefit Services proposal are intended to represent your plan’s funding levels (fixed cost + expected claims + estimated needed reserve).