Self-Funded Health Plans
A Component of Tucker Administrators’ Employee Benefit Risk Management Program
What is self-funding?
A self-funded health plan is sponsored and designed by the employer. The employer does not purchase traditional “insurance”, but pays for actual claims through a reserve fund established specifically for this purpose. Stop loss insurance is purchased to protect the company against high dollar claims. It allows a plan to set in advance the maximum loss levels it is willing to sustain on any specific situation or on the aggregate of claims on the whole group. A Third-Party Administrator (TPA) is usually hired to administer the plan. That means to adjudicate and pay the claims, provide COBRA/ HIPAA administration, ensure compliance with the current federal regulatory requirements, research and select stop loss insurance, prepare the Summary Plan Description, and to generate detailed monthly reports so the employer can see each and every health plan expenditure.
Why Use Tucker Administrators for a self-funded plan?
Many employers have their agent, broker or consultant evaluate their health plan for the benefits provided, and make a decision based solely on the price. The largest component of health plan expenses is claims. Doesn’t it then make sense to go one step further and find ways to reduce claims costs? Tucker Administrators is an experienced advisor providing real-world benefit solutions with proven results that minimize the financial risks associated with employee benefits. Tucker Administrators' defining difference from other TPAs is the tools we have to change the way employees think about their health, and to minimize high-cost claims through early detection of severe and chronic illnesses.
Even though self-funded plans are extremely cost-effective, the administration is complex. A self-insured employer subjects itself to all legal and regulatory requirements under the Employee Income and Retirement Act (ERISA). This Act preempts indivdiual state mandates for health insurance and allows an employer to offer a standardized health plan across state jurisdictions. You need a TPA that is current on federal government regulations that affect group health plans. Besdies ERISA, examples are COBRA, HIPAA. FMLA, and many others.
With the advent of health care reform through the Patient Protection and Affordable Care Act (PPACA), self-insured plans are, with few exceptions, subject to the same federal mandates and requirements as fully insured plans.
The selection of the appropriate stop-loss contract is crucial to protecting the financial integrity of an employer. Employers who rely on recommendations from those who are uninformed about stop loss concepts may put the plan at significant financial risk. Tucker Administrators has the solid experience in the stop loss market to ensure the stop loss contract fits the benefit plan design and financial needs of the employer.
How is it different than fully-insured plans?
A fully insured plan is an insurance contract with an insurance carrier. The insurance carrier assumes the risk for and pays the claims. The carrier usually provides all COBRA/HIPAA administration, issues policy certificates to employees. The carrier charges a monthly premium, payable in equal payments for 1 or more years.
Is self-funding risky for small employers?
Many people think self-funding is appropriate only for the larger employer with over 100 employees. However, since health plan expenses now ranks as the largest employee expense, smaller employers are now seeking self-funded health plans as a way to reduce costs.
Part of the reason small employers haven't considered self-funding is that they have not been informed about how their premiums are allocated. Since insurance companies are currently not required to provide the smaller employer with detailed information on claims paid, there has been little or no data to access and analyze how or why benefit dollars are being spent.
With a self-funded plan from Tucker Administrators, the employer will always receive a report on every plan expense for claims and administration. We meet with the client once every quarter to review the reports, and if appropriate make suggestions.
All self-funded options from Tucker Administrators include reports that list each expenditure and analyze total expenditures made. This provides the employer with the information to analyze benefit expenditures and eliminates surprises at the annual renewal time. Since information is control, this gives the employer control of the benefit program.
What is a limited self-funded plan?
Tucker Administrators also has a limited self-funded plan designed for the smaller employer. The limited self-funded program includes more control over plan designs to fit the budget, cash flow management solutions that ease the burden during high claims payment periods, and a specific claims processing structure that provides highly personalized service.
How does Self-Funding work?
An employer decides on a plan of employee benefits with assistance from Tucker Administrators. This plan may often be similar to the plan currently provided on an insured basis but may be changed to reflect the goals and attitude of the management team.
Stop loss insurance is arranged to protect the plan against extreme losses. The amount of risk to be insured will be a function of the organization's size, nature of business, location, plan of benefits, financial resources, prior experience and tolerance for risk.
A plan document is prepared. The plan document contains all the provisions of the plan, including eligibility, coverage, and termination. Employee benefit descriptions, identification cards and other materials necessary to operate the plan are also prepared, generally by Tucker Administrators.
Under the direction of the Plan Sponsor/Plan Administrator, Tucker Administrators operates the day-to-day administration of the plan. This includes maintaining proper funds on deposit so that claims can be paid, paying the claims, preparing special claim reports and other required data for the plan and the stop loss carrier, and preparing any required governmental reports. Tucker Administrators also bills and collects any premiums and other administrative fees for the plan.
What types of benefits are self-funded?
Usually the group health plan is the focus of a self-funded program. Other health benefits are often included, such as dental, vision, prescription drugs, and short-term disability. Certain high loss, low frequency coverages, such as life insurance, accidental death and dismemberment, and long-term disability are generally not suitable for self-funding.
What Are the Advantages To Self-Funding a Health Plan?
Employer Investment:
Employers invest millions of dollars each year in insured employee benefit plans. As the cost of providing medical insurance increases, employers are looking at funding alternatives for their health and welfare plans. Many employers are disappointed with their fully-insured plans because:
* They are limited to off-the-shelf plans.
* Effective cost containment programs are not always available.
* Fully insured plans tend to consume employee compensation dollars that can be better spent to curb employee turnover and to attract new, qualified employees.
* Self-funded plans are regulated under ERISA, that preempts iindividual state mandates for health insurance and allows an employer to offer a standardized health plan across state jurisdictions.
More Financial Control: Under a self-funded plan, it is usually possible for an employer to reduce operating costs significantly and maintain control of reserves usually held by insurance companies. The reserves should be held in a trust, producing tax-exempt interest and thereby reducing the cost of providing employee benefits. Reserves can also be held in an interest-bearing bank trust account.
Financial Protection: In order to provide an extra measure of financial protection against catastrophic claims, most employers purchase Stop Loss insurance coverage. This protects the plan from large individual claims and from an excessive amount of total claims.
Elimination of most premium tax: In most states, there is no premium tax for self-funded claim funds. This produces an immediate savings equal to the amount of the premium tax, approximately 2% to 3% of the fully-insured premium.
Lower cost of operation: Employers frequently find that administrative costs for a self-funded program through Tucker Administrators are lower than those charged by their previous insurance carrier.
Carrier profit margin and risk charge eliminated: The profit margin and risk charges of an insurance carrier are eliminated for the bulk of the plan. This translates into direct savings for the client.
The chart below reflects the allocation of health plan costs:
