Your Healthcare Plan: To Fully Insure or Self Insure? September 2010 John Faustgen, CEBS Benefits Manager - Land O’Lakes, Inc. About Land O’ Lakes, Inc. Fortune 250 Company with $12.1 Billion in revenue Headquartered in Arden Hills, MN One of America’s premiere farmer-owned cooperatives Extensive line of agricultural supplies, state-of-the-art production and business services to farmers, co-ops and customers Leading marketer of dairy-based products for consumers, foodservice professionals and food manufacturers. Conducts business in all 50 states as well as internationally More than 12,000 employees, at 200+ Locations Approximately 1,500 union employees participate in Land O’Lakes Benefit Plans. What is Fully-Insured? When you buy a pre-packaged medical plan on the open market. In effect you are paying someone else (an insurance company) to take on the risk and administrative expense of a medical plan. This is known as being “fully-insured” or “fully-funded.” What is Self-Insured? When you design and pay your group’s actual medical plan claims and plan expenses. You assume the risk of the costs of the groups claims. In essence you are your own insurance company. This is known as “self-funded” or “selfinsured.” Comparison/Example Claims Turn Out as Projected Funding Type Employee Count Claims Admin + Risk Cost Insurer Profit or (Loss) Net Business Cost Fully-Insured 500 $3,000,000 $750,000 Self-Insured w/Stop Loss 500 $250,000 $3,000,000 $750,000 Includes SL Premiums N/A $4,000,000 Premiums Paid $3,750,000 Actual costs incurred Comparison/Example Claims 10% Less than Projected Funding Type Employee Count Claims Admin + Risk Cost Insurer Profit or (Loss) Net Business Cost Fully-Insured 500 Self-Insured w/Stop Loss 500 $2,700,000 $750,000 $2,700,000 $750,000 Includes SL Premiums $550,000 N/A $4,000,000 Premiums Paid $3,450,000 Actual costs incurred Comparison/Example Claims 10% Greater than Projected Funding Type Employee Count Claims Admin + Risk Cost Insurer Profit or (Loss) Net Business Cost Fully-Insured 500 $3,300,000 $750,000 Self-Insured w/Stop Loss 500 ($50,000) $3,300,000 $750,000 Includes SL Premiums N/A $4,000,000 Premiums Paid $4,050,000 Actual costs incurred Self-Funding Features and Benefits Feature Increase Cash Flow Control of Reserves Flexibility of plan design, banking and re-insurance levels Portability of Plan Design Eliminates premium tax in many states Not subject to state regulations or mandates Benefit Use of $ until needed More Funds Available More control in plan design, payments and reinsurance levels Less disruption for EEs Savings of 2-4% on insured cost reductions Eliminate unnecessary costly mandated benefits Fully-Insured Features and Benefits Feature Predictable Monthly Cost Leverage Insurance Company’s Experience and Financial Scale Demands Less Work to Set-up Medical Plan Most Legal Regulations & Compliance Requirements Handled by Insurer Benefit Easier Budgeting Less Plan Overhead Resources needed and Transfer of Risk More straightforward for Buyer Reduced Plan Legal and Fiduciary Responsibilities Detriments of Self-Insured Requires More Time Involvement in Benefit Design, Installation and Ongoing Medical Plan Management Harder to Budget Medical Plan Cost Fiduciary and Legal Responsibilities Claims Run-off Liability (After Plan Termination Date) Smaller Group with ongoing High Claims Detriments of Fully-Insured Limited Selection of Medical Plan Designs Must Adapt Insurer’s Administrative Rules Insurer Sets Medical Plan Cost (Premiums) Added Cost for state premium tax, mandated benefits and insurer profit. No control in setting future plan trend or reserve levels QUESTIONS?