National Benefits - Group Insurance
Think Outside the Box . . .
Self-funded Health Plans & Obamacare
A Viable Alternative for Small Groups 10 – 50 Lives
When brokers think of employers self funding their employee health plans, they usually consider it only for their largest clients. Conventional wisdom is that only larger employers have the resources and the stability to support a self-funded benefit plan.
A new trend has started that makes self funding a viable alternative for smaller employers in the sub-100 life market. Employers with as few as 10 employees are now being offered self-funded plans with reasonable stop loss coverage that provides them protection from high claims.
Why would a small employer want to consider self funding? In a word . . . Money
Long term, self funding is the most cost effective way to fund an employee health plan. Self-funded plans are not regulated by the states, and thus avoid many of the cost burdens associated with fully insured plans. An employer using a typical fully insured plan pays 2-3% of his or her premium just in state premium taxes alone. State-mandated coverage benefits add to the burden by imposing additional premium costs for benefits not always highly regarded when an employer is purchasing a health plan.
Money also is saved by eliminating the profit margin expected by an insurance company for providing a fully insured health plan. While margins are small compared to many industries, and getting smaller because of the Medical Loss Ratio requirements of the Affordable Care Act (ACA),it's still an extra cost that is partially eliminated by self funding.
However, the true savings potential of self funding is in the funding or payment of claims. It is the employer’s money that pays the claims, so when claims are low, it is the employer’s money that is saved or not spent. Savings potentials are enormous with an average employer saving enough costs equivalent to a month or more of traditional insurance premiums.
Safety for small groups
What about the risk of self funding? How is a small employer protected when claims are high?
The answer is stop-loss coverage. Stop loss is an excess loss coverage policy that protects an employer when the claims of any one individual exceed a certain dollar amount (specific stop loss) or when the total claims of the group exceed a set level (aggregate stop loss).
Using stop-loss coverage, self-funded plans can be built that mimic a fully insured plan: the employer pays a set "premium" each month. The employer's risk is capped at that payment level which provides a known maximum cost. If claims are less than this total payment (which covers claims and the fixed costs of stop-loss coverage and administration costs), the unused money still belongs to the employer and the health plan. It's NOT insurance company profit like it would be in a fully insured plan.
These "level" or "max funded" plans for small employers provide the smaller employer with cash flow certainty – there are no unexpected claims calls when claims are high. And these plans usually feature an accommodation provision which loans money to the employer at no additional cost if aggregate claims have exceeded the employer's current claims funding. Continual payment by the employer of the level monthly costs through the plan year will repay the loan as the employer fully funds their claims exposure for the year.
ACA and its impacts on health plans
Beginning In 2014, the ACA will have an enormous impact on premium costs in the fully insured market. Many of those cost drivers are caused by insurance regulations that don't impact self-funded health plans. All carriers are predicting large double-digit rate increases for 2014. This will make employers start to look at self funding as a viable, cost-saving alternative for smaller group insurance.
Start Quoting Today
Quoting is fast and easy. National Benefits Consultants has various plan offerings for your groups! Send in your quote requests today. E-mail Cheri@NatBenCo.com or call Tim at 720-488-9892 or 800-530-8646
A Viable Alternative for Small Groups 10 – 50 Lives
When brokers think of employers self funding their employee health plans, they usually consider it only for their largest clients. Conventional wisdom is that only larger employers have the resources and the stability to support a self-funded benefit plan.
A new trend has started that makes self funding a viable alternative for smaller employers in the sub-100 life market. Employers with as few as 10 employees are now being offered self-funded plans with reasonable stop loss coverage that provides them protection from high claims.
Why would a small employer want to consider self funding? In a word . . . Money
Long term, self funding is the most cost effective way to fund an employee health plan. Self-funded plans are not regulated by the states, and thus avoid many of the cost burdens associated with fully insured plans. An employer using a typical fully insured plan pays 2-3% of his or her premium just in state premium taxes alone. State-mandated coverage benefits add to the burden by imposing additional premium costs for benefits not always highly regarded when an employer is purchasing a health plan.
Money also is saved by eliminating the profit margin expected by an insurance company for providing a fully insured health plan. While margins are small compared to many industries, and getting smaller because of the Medical Loss Ratio requirements of the Affordable Care Act (ACA),it's still an extra cost that is partially eliminated by self funding.
However, the true savings potential of self funding is in the funding or payment of claims. It is the employer’s money that pays the claims, so when claims are low, it is the employer’s money that is saved or not spent. Savings potentials are enormous with an average employer saving enough costs equivalent to a month or more of traditional insurance premiums.
Safety for small groups
What about the risk of self funding? How is a small employer protected when claims are high?
The answer is stop-loss coverage. Stop loss is an excess loss coverage policy that protects an employer when the claims of any one individual exceed a certain dollar amount (specific stop loss) or when the total claims of the group exceed a set level (aggregate stop loss).
Using stop-loss coverage, self-funded plans can be built that mimic a fully insured plan: the employer pays a set "premium" each month. The employer's risk is capped at that payment level which provides a known maximum cost. If claims are less than this total payment (which covers claims and the fixed costs of stop-loss coverage and administration costs), the unused money still belongs to the employer and the health plan. It's NOT insurance company profit like it would be in a fully insured plan.
These "level" or "max funded" plans for small employers provide the smaller employer with cash flow certainty – there are no unexpected claims calls when claims are high. And these plans usually feature an accommodation provision which loans money to the employer at no additional cost if aggregate claims have exceeded the employer's current claims funding. Continual payment by the employer of the level monthly costs through the plan year will repay the loan as the employer fully funds their claims exposure for the year.
ACA and its impacts on health plans
Beginning In 2014, the ACA will have an enormous impact on premium costs in the fully insured market. Many of those cost drivers are caused by insurance regulations that don't impact self-funded health plans. All carriers are predicting large double-digit rate increases for 2014. This will make employers start to look at self funding as a viable, cost-saving alternative for smaller group insurance.
Start Quoting Today
Quoting is fast and easy. National Benefits Consultants has various plan offerings for your groups! Send in your quote requests today. E-mail Cheri@NatBenCo.com or call Tim at 720-488-9892 or 800-530-8646
Health Insurance Self-Funding Advantages-
1. Cash flow benefits – employers fund and manage their own claims account.
2. No pre-payment for claims – all money stays in client’s account and only goes out when claims are processed. The employer has the ability to build reserves.
3. When claims experience is lower than projected, plans can build reserves to help cover future costs. In a fully insured arrangement if there are savings, the insurer keeps those funds.
4. Lower administrative costs than a fully insured equivalent.
5. Reduced premium tax – an employer only pay taxes on the reinsurance amount,not on the claims dollars.
6. Ability to customize the health plan.
7. ERISA qualified plans offer consistent benefits to all employees regardless of location and avoid burdensome state mandates.
8. Ancillary service flexibility. MGUs and TPAs typically negotiate with multiple PBMs,PPOs, Case Management Companies, etc., to get the best possible services for the dollar.
9. Fully insured carriers “bundle” services and force a group to take services which may not be market competitive with other vendors on a stand alone basis.
10. The flexibility to make well informed benefit changes based upon full reporting of claims experience.
11. The group benefits directly from favorable claims experience, managed care programs, and other cost control measures.
Why suggest self-funding to your clients?
Most employer groups make the change because they become disappointed with their fully insured plan-
How many Employer Groups Self-fund?
1. Cash flow benefits – employers fund and manage their own claims account.
2. No pre-payment for claims – all money stays in client’s account and only goes out when claims are processed. The employer has the ability to build reserves.
3. When claims experience is lower than projected, plans can build reserves to help cover future costs. In a fully insured arrangement if there are savings, the insurer keeps those funds.
4. Lower administrative costs than a fully insured equivalent.
5. Reduced premium tax – an employer only pay taxes on the reinsurance amount,not on the claims dollars.
6. Ability to customize the health plan.
7. ERISA qualified plans offer consistent benefits to all employees regardless of location and avoid burdensome state mandates.
8. Ancillary service flexibility. MGUs and TPAs typically negotiate with multiple PBMs,PPOs, Case Management Companies, etc., to get the best possible services for the dollar.
9. Fully insured carriers “bundle” services and force a group to take services which may not be market competitive with other vendors on a stand alone basis.
10. The flexibility to make well informed benefit changes based upon full reporting of claims experience.
11. The group benefits directly from favorable claims experience, managed care programs, and other cost control measures.
Why suggest self-funding to your clients?
Most employer groups make the change because they become disappointed with their fully insured plan-
- Fully insured plan designs remain relatively inflexible in terms of mandated state benefits
- Effective cost-containment programs are not always available
- Employee specific claim details is not available to effectively manage risk
- The employer group is unable to create a uniform strategy to effective manage risk
- Fully insured plans tend to consume dollars that could be better spent elsewhere.
How many Employer Groups Self-fund?
- In 2008, 45 percent of workers with health insurance were covered by a fully insured plan
- 55% of workers with health insurance were covered by an employer self-insured plan