Gone are the days when the only option an employer had to provide its employees with health insurance coverage was through a fully-insured health insurance policy. With this conventional health plan, an employer pays a fixed monthly premium to an insurance company to cover the anticipated costs of healthcare claims. The insurer collects the monthly premium for all participants enrolled on the health insurance policy, regardless of whether employees use the plan.
Today, employers have an alternative to providing healthcare coverage to their employees. It’s called self-funding, and its popularity is rising among employer groups of all sizes. This type of health plan arrangement allows employers to pay for employee health claims directly as these claims are submitted. The health insurance plan is typically administered by a third-party administrator, or TPA. A TPA facilitates the claims processing and payment, the healthcare network, and the financial reporting while providing various services for the employer on an as-needed basis. The company then undertakes the responsibility of managing the health of its employees by implementing wellness and disease management programs to keep health claim costs to a minimum.
If you are not familiar with self-insurance, here are just a few of the many benefits this type of health plan arrangement provides:
Cost Savings. Going self-insured gives employers control of their own healthcare claims, and the savings can add up dramatically if employees generally use fewer benefits. For example, employers automatically save on the costs of conventional insurance premiums that compensate for overhead, profits and commissions by paying only the direct costs of administering employee claims. If employees are relatively healthy, studies have shown that self-funding can save an employer 20 percent or more on healthcare costs and can be one of the best ways to manage inflation and the rising costs of healthcare. By reviewing the spending patterns of claims coming in, an employer can target the health conditions where their employees need additional support to improve their health and save both the employer and themselves costs over time.
Stop-Loss Protection. One aspect of going self-insured that employers are concerned about is how risky it can be. Yes, there is some risk involved when a company goes self-inured. To reduce the risk, employers can have their TPA coordinate the purchase and management of stop-loss insurance (also called reinsurance), which can help alleviate their fear of getting hit by high healthcare claims. This insurance limits the annual dollar amount of claims submitted against the employer’s self-funded plan and caps a specific limit to any one individual. Annual deductibles are established for both specific and aggregate stop-loss, and once those deductibles are met, the stop loss carrier refunds monies to the employer’s plans for any future claims submitted within the plan year. Although employers will pay a premium in a self-funded plan for stop-loss insurance, stop-loss premiums are typically much lower than medical insurance premiums for a conventional fully-insured plan.
Flexibility of Plan Design. A big advantage to self-funding is that an employer is given the additional control and flexibility of designing its own health plan to meet the specific needs of the company and employee population. Employers are given insight into their health plan with various claims, spend and utilization reports provided by the TPA, which allows the employer to analyze the overall health and utilization of the plan. The employer may then revise or reinforce components of the plan to account for plan needs that help to benefit the employer and health plan participants.
Steps to Going Self-Funded
Once an employer has decided to move to a self-funded plan, the first step is to retain the services of a qualified and experienced TPA. A TPA offers a variety of services including access to health care networks, administration and eligibility services, claims processing expertise, benefit plan design, legal and other services that employers typically lack the staff or expertise to provide on their own.
The second step is for the TPA and employer to develop a benefit plan that is designed to meet the healthcare needs of the employees and is concurrently cost-effective for the employer. TPAs can also provide consultation to ensure that benefit plans comply with current regulations.
The last step taken by the employer should be to obtain stop-loss coverage through a stop-loss carrier to protect against catastrophic claims submitted by an individual, as well as aggregate stop-loss insurance, which limits the annual dollar amount submitted against the employer’s self-funded plan.
Going self-funded is a viable option and one employers should not fear but look into if they are considering another alternative to providing health care coverage to their employees while saving on rising health care costs.
For more information or questions regarding third party administration or self-funding, please contact David Zanze, President of Pinnacle Claims Management, Inc., at (949) 885-2209 or [email protected]
