Many companies are looking for ways to save money on insurance costs. An increasingly popular option is a self-funded health plan.
With these plans, you pay the claim costs incurred by your employees. These plans offer tremendous flexibility and the ability to customize plan designs based on the specific needs of your business.
“In a self-funded environment, your health care costs are much more transparent,” says James Repp, vice president of sales with AvMed Health Plans. “You can use this information to better understand what medical conditions, procedures or pharmaceutical drugs are driving claim costs and then develop programs and benefit designs to positively impact these costs.”
Smart Business spoke with Repp about self-funded plans and how to make sure they are well managed.
What is the difference between fully insured and self-funded plans?
Fully insured plans provide a fixed premium that doesn’t change over the contract period, regardless of whether the claims are substantially more or less than projected. It’s essentially winner takes all. The insurance carrier benefits if claims are less than expected, and the employer benefits if they’re more than expected. Typically, fully insured plans provide a standard set of services that are included in the premium and the employer does not have the ability to customize these services.
In a self-funded plan, the employer contracts with a company to provide administrative services and the employer takes on all claim liability. Most groups that self-fund also purchase stop loss insurance to protect against claim liability that may be above acceptable levels. Self-funding, with the appropriate stop loss coverage, is generally appropriate for groups with at least 200 employees. One of the biggest challenges of self-funding is the fluctuating risk in a group. The smaller the group, the less predictable the future experience.
What is stop loss insurance?
There are two different categories of stop loss insurance — specific stop loss and aggregate stop loss. The specific stop loss limit is set at the individual member level. Amounts range based upon the size and risk tolerance of the employer, but commonly this amount is between $50,000 and $100,000 per contract period. The employer’s liability for any one member would be set at this limit. For example, if a member has a $1 million claim, the employer would only be liable for the first $50,000 of the claim, and anything above that would be covered under the insurance policy. The aggregate stop loss limit is set over the entire plan at a percentage of expected costs. For example, typical aggregate stop loss would be set at 125 percent of the expected cost level. You would pay everything up to 125 percent on an aggregate basis, and anything over that would be protected under insurance.
