As the cost of health care continues to
rise, employers are looking for different ways to save money. But, at the
same time, they still want to provide their
employees with quality health benefits.
One way to do that is with a self-funded
health plan. In a self-funded plan, an employer invests in a fund to pay for the cost of its
employee benefits plan, rather than paying a
premium to an insurance carrier. The
amount of money set aside is based on a professionally calculated risk analysis that determines the projected level of claims.
“The larger the employer, the more apt
they are to be self-funded, simply because
there’s a more predictable risk,” says Kevin
Cavalier, vice president of sales for
SummaCare, Inc. “Once you fall below 100
employees, you get volatile and unpredictable claim fluctuations from month to
month, making it tough to budget your costs
versus a fully insured premium.”
Smart Business spoke to Cavalier about
self-funding and how a company can set up a
self-funded health plan.
Who should consider self-funding?
Self-funding may be right for an employer
who is not averse to taking on the risk.
Employers should consider self-funding if
they do not have a high amount of claim
activity, have a focus on employee health and
wellness and have a stable work force of at
least 100 employees.
Although self-funding can work for businesses with fewer than 100 employees, the
premiums the employers pay for excess stop-loss and protection against catastrophic
claims can be so great it resembles a fully
insured premium.
What are some of the roles and responsibilities of the employer?
In a self-funded plan, the employers take on
the role as the plan sponsor, so they decide
which benefits to offer and custom-design a
plan best suited for their employees. Unlike
fully insured options governed by state
departments of insurance, self-funded plans
are regulated by the federal Employee
Retirement Income Security Act (ERISA) of
1974, giving the employer additional flexibility in modifying coverage and eliminating
many expensive and duplicative state-mandated benefits.
Besides determining what kinds of benefits
employers want to offer their employees, it is
the employer’s responsibility to make sure
benefits are administered properly. Most
insurers or third party administrators that
offer self-funding provide a wide array of
other services, including claims administration and customer service. They can also provide you with data and funding arrangements
to pay claims on a weekly basis.
The employer should also ensure the third
party administrator has access to health
care networks and that the proper one is
chosen based upon the current utilization
patterns of his or her employees. The third
party administrator and the network need
to demonstrate that their contracts with
health care providers provide adequate discounts to control costs.
It’s also important that the employer has
access to stop-loss reinsurers or other insurers so he or she can buy catastrophic coverage for the potential high claims that may
incur within his or her work force.
After choosing a third-party administrator and deciding what kind of benefits to offer to
employees, employers pick a plan they like
and provide all plan participants with a summary plan description (SPD) that outlines
coverage. The employer then works with the
claims administrator to pay claims on behalf
of the employer. Typically, the employer will
receive a detailed analysis of the claims paid
on behalf of his or her employee population,
and then money is wired from a bank into the
account of the claim administrator, who
releases the payment to the health care
providers. Cash flow is essential to this
process because there are some state
requirements in terms of prompt payment to
health care providers that need to be met.
What are some of the risks and coverage
implications?
Before switching from a fully-insured to
self-funded health plan, look at the health of
your work force. If you have significant ongoing claims, such as those incurred from cancer or other chronic illnesses, now may not
be the time to switch. Your catastrophic stop-loss insurer could increase your rates or put
a higher individual deductible on those individuals with chronic conditions, leaving you
with inadequate coverage to avoid catastrophic claim losses.
A fluctuating work force can also increase
your costs and affect your bottom line in a
self-funded health plan. If you’re laying off
younger employees who tend to be healthier,
this typically leaves you with an older work
force that will probably use more health care
dollars and cost you more money on average.
Finally, employers must make sure they are
consistent with the administration of plan
documents. Information should be accurate
and non-discriminatory, and benefits should
be consistent amongst all employees.
To find out more about self-funding or to
determine if self-funding is right for your
business, contact your insurance broker or
consultant.
KEVIN CAVALIER is the vice president of sales for SummaCare, Inc. Reach him at (330) 996-8650 or [email protected].
SummaCare, Inc., a provider-owned health plan located in Akron, Ohio, services members in an 18 county service area through a network of over 7,000 providers and many top hospitals.
