The Concepts of Self-Funding
Self-Funding Basics
Self-Funding
Employer funds/pays its own claims rather than buying traditional health insurance
Employer often delegates administrative responsibilities to a TPA/Insurer/HMO
Employer can manage its exposure to catastrophic claims expense by purchasing stop
loss insurance (excess risk)
ERISA (Employee Retirement Income Security Act) (1974)
Formally recognized Self-Funded Plans
Specifically exempts most self-funded employee benefit plans from state regulation,
including mandated benefits
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Alternative Financing
Who Assumes the Risk?
FullyInsured
Plans
Retrospective
Premium
Agreements
100% Transfer of Risk
Minimum
Premium
Accounts
Self-Funded
ASO w/Stop
Loss Insurance
Pure SelfFunding
(ASO)
No Transfer of Risk
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Self-Funding Advantages for an Employer
Group Controls the plan, not the insurer
Group can take advantage of their own good medical experience
-
Can Result in more effective healthcare cost control
Employer can be very flexible in health plan design
-
ERISA applies, often in lieu of state-mandated minimum benefit levels, easing
administration of multi-state plans
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Self-Funding Advantages for an Employer
•
May help employers cash flow
-
Pay claims as incurred – no pre-funding or up-front reserve payments
-
Reserves held by employer instead of insurance carrier. Interest paid on these
reserves also remains with the employer
•
Essentially creates a not for profit health plan since it eliminates most risk
charges and profit margins charged by insurers and the employer cannot
export annual “surplus” into company PNL
•
Employer may purchase stop loss to reduce its exposure to losses due to
catastrophic claims and create more predictability
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Self-Funding Considerations for an Employer
•
Risk Assumption / Risk Aversion
•
Cash Flow
•
Unpredictably Poor Experience
•
Assets Exposure
-
General Asset Plan
-
501 (c) (9) Trust Account
•
Fiduciary Responsibility
•
Risk Suitability
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Risk Suitability
What type of claims to fully-insure?
What type of claims to self-fund?
Unpredictable: low frequency, high severity
Predictable: low severity, high frequency
Examples
Examples
Life / AD&D
Medical
Long Term Disability
Dental
Vision
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Who is Insured?
Employer / Plan Sponsor
•
The employer has made a promise to provide benefits
•
Existence or absence of stop loss does not change that promise
The individual / participant is NOT the insured
•
Stop Loss reimburses the employer / plan sponsor for any claims the plan has paid over
the stop loss deductible
* Stop loss policy reimburses employer for catastrophic losses associated with providing health benefits
to employees and dependents. Stop loss cannot pay providers or employees of the employer.
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Who is Insured?
Fully-Insured
Employee
Self-Funded
Employee
Self-Funded
Plan
Insurance
Company
Employer
Employer
Stop Loss
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Specific (Individual) Coverage
•
Reduces the employer’s exposure to high-cost individuals
•
Employer pays all claims for each individual
•
Stop loss carrier reimburses the employer for claims on individuals whose
annual eligible* expense has exceeded the specific deductible
•
At each contract renewal, each individual will be subject to a new specific
deductible
* Note: Eligible and reimbursable expenses under the terms of the stop loss policy may
differ from the employer’s plan document.
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Aggregate Coverage
•
Aggregate coverage is offered at 125% of the expected claims
•
Aggregate coverage can also cover Rx, Dental and Vision claims
•
Aggregate coverage will not be sold alone
-
Aggregate coverage does not provide “catastrophic” coverage
-
Specific “protects” the Aggregate
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Self-Funded / Stop Loss Cost Defined
Fixed Costs
- Specific Premium
- Aggregate Premium
- Administration Fees – TPA, PPO Network, UR, etc.
Variable Costs
- Expected Claims
Total Cost
- Fixed
- Variable
Maximum Cost
- Fixed
- Attachment Point (Expected plus Corridor)
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Two Important Definitions
Incurred
The date on which medical care or a service or supply is provided to a covered person for plan
benefits under the employee benefit plan for which a charge results
Paid
Charges that, as of the dates shown in the contract basis, are:
1.
Covered and payable under your employee benefit plan, and
2.
Have been adjudicated and approved, and
3.
A check or draft for remuneration is issued and deposited in the U.S. mail, or other similar
conveyance or is otherwise delivered to the payee, and
4.
Sufficient funds are on deposit the date the check or draft is issued
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Incurred Contract
1/1/09
12/31/09
Incurred (date service was rendered)
Paid (date claim paid by administrator)
Incurred - To be eligible under the specific, the claim must be incurred in
the contract period. There are no time requirements for when the claim is
paid. However, a claim notice must be submitted within 12 months after the
policy period. For renewal years, the specific contract will remain an
incurred contract.
Appropriate if group is currently fully-insured or has run out protection with
current stop loss carrier.
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12/15 Contract
1/1/09
12/31/09
3/31/10
Incurred (date services was rendered)
Paid (date claim paid by administrator)
Incurred in 12 and Paid in 15 (12/15) - Eligible claims must be incurred during the
contract period and paid within the contract period or the three months immediately
following.
This is an abbreviated version of the “true incurred” contract.
Variations include 12/18 and 12/24 contracts.
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12/12 Contract
1/1/09
12/31/09
Incurred date service was rendered)
Paid (date claim paid by administrator)
Incurred and Paid (12/12) - Eligible claims must be incurred and paid
within the policy year. For renewal years, the contract will convert to a paid
contract and the claims will be eligible under the renewal contract
regardless of the date incurred, as long as it was incurred on or after the
initial effective date of the contract.
This is an appropriate first-year contract type for a group that is currently
fully-insured or a group that is self-funded and the policy has a run-out
provision.
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Paid Contract
1/1/09
12/31/09
Incurred (date service was rendered)
Paid (date claim paid by administrator)
Paid - On renewal, a 12/12 or 15/12 contract becomes a paid contract. Claims will be
eligible under the renewal contract regardless of the date incurred, as long as it was
incurred on or after the initial effective date of the stop loss policy.
This is appropriate for renewal contracts that started out as 12/12 or 15/12 contracts.
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PPACA Effects on Self-Funded
•
Prohibited use of pre-existing condition exclusions on dependent children
under the age of 19
•
Prohibition of cost sharing on preventive services and immunizations
(unless Grandfathered)
•
Requirements of coverage for emergency services without preauthorization
•
Prohibition on plans from requiring authorization or referral for patients
seeking OB/GYN services (unless Grandfathered)
•
Extension of coverage for dependents up to 26 years of age
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PPACA Effects on Self-Funded Plans
Renewal / Start Dates
Permitted Annual Maximums
September 23, 2010
$ 750,000
September 23, 2011
$ 1,250,000
September 23, 2012
$ 2,000,000
January 1, 2014
No Annual Maximum Permitted
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Small Group Impacts on Self-Funded Plans
•
Current Definition of under 50 employee lives
•
60A.236 stop loss law; small employer coverage:
-
•
A contract providing stop loss coverage, issued or renewed to a small
employer, as defined in section 62L.02, subdivision 26, or to a plan
sponsored by a small employer, must include a claim settlement period no
less favorable to the small employer or plan that coverage of all claims
incurred during the contract period regardless of when the claims are paid
Stop loss carriers make coverage available on multiple contracts
basis and the purchaser makes the determination of which type of
coverage they desire
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Small Group Impacts on Self-Funded Plans
•
In Minnesota today, self-funded plans with fewer than 50 employees
are “incurred” stop loss contracts
•
Most self-funded plans (over 50 employees) purchase stop loss on
“run-in” basis rather than a “run-out” basis, if coming from another
stop loss contract
•
For many years now self-funded products have been available to
employers with fewer than 50 lives. As a TPA and carrier, we have not
seen any “back and forth” migration into or from fully-insured small
group plans
•
Self-funding verses fully insured fits certain employers conceptually
but not all. Moving the small group size limit to 100 would not change
this current philosophy
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Small Group Impacts on Self-Funded Plans
MN Proposed Changes
•
The current Minnesota small group law forces stop loss carriers to load additional
costs into “run-in” contracts to cover the laws “run out” requirement
•
If expanded to 100 lives and under, then a material population will be forced to
purchase a product that provides both “run in” and “run out” coverage
•
We think the additional premium we would charge for such additional coverage
would be 7-10% on average
Potential ways to mitigate additional costs for self-funded employers
•
Allow a waiver on the application for the plan that is on a “run in” basis to decide if
they want the additional “run out” coverage (samples can be provided for review)
•
Have the stop loss statute continue to apply to groups under 50 lives
•
Have the stop loss statute only apply to plans that do not meet the minimum spec
and aggregate requirements (60A.235, subdivision 2&3)
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QUESTIONS?