An increasing number of employers are considering self-insured coverage plans as a more affordable option to comply with the Affordable Care Act (ACA).
“Typically, large employers benefit more from self-funding because due to the size of their workforce, it becomes less expensive to pay for medical claims as they arise than to pay premiums to the insurance company,” says Ron Filice, president and CEO at Filice Insurance. “For these employers, especially those with a stable claims history, self-insuring can result in substantial cost savings.”
Small companies are not precluded from considering a self-funded strategy, but they are at a much higher risk of incurring unexpected, significant claims costs.
Smart Business spoke with Filice about what companies need to know when thinking about becoming self-insured.
What are some considerations that are unique to employers with self-insured plans?
The absence of an insurance carrier results in the employer taking on considerably more responsibility and liability. One often overlooked area of this increased liability concerns the assets of the plan. A fully-insured plan pays premiums to the carrier.
However, an employer that self-insures its health plan does not have an insurance carrier to which it remits premium payments or that maintains the plan’s assets.
Instead, this responsibility falls squarely upon the employer. An employer is permitted to pay claims from its general assets as they are incurred, but if any participant contribution is required — even if only for dependent coverage — the law requires those contributions be held in a trust, separate from the general assets of the company.
Another area of increased liability stems from the Health Insurance Portability and Accountability Act (HIPAA) privacy rule, which protects individually identifiable health information.
The rule exists to protect an employee from suffering adverse employment action as a result of the employer’s knowledge of their medical claims and costs.
An employer that sponsors a self-insured plan will be privy to the medical claims submitted by each employee. The receipt of the claims does not violate HIPAA, but the fact that the employer has the information may later raise serious questions of misuse, such as adversely targeting employees who incur high costs to the plan.
How can an employer minimize the risks?
Self-insured plans should utilize a third-party administrator (TPA). A skilled and knowledgeable TPA brings expertise in compliance and administrative-related issues with which an employer will, more often than not, have no experience.
One of the most important roles a TPA will fill is claims administration.
All medical claims incurred by plan participants will be submitted directly to the TPA, which removes the employer from the process of dealing with sensitive and protected employee information.
The employer retains the role of sponsor. But the opportunity to delegate certain duties, including claims administration, to a TPA allows the employer to focus on overall plan design and function, and to maintain a safe distance from the grittier details that concern individual participants.
Does the ACA raise any additional concerns for companies with a self-insured plan?
The ACA imposes a host of new obligations on employers and health plans, both fully-insured and self-funded. One of the most discussed requirements under the ACA is the Section 6055 and 6056 IRS reporting requirements that come due in early 2016.
Under this requirement, employers with self-insured plans must report more information than those with fully-insured plans.
For example, a small employer with fewer than 50 full-time employees is entirely exempt from the new IRS reporting requirements, unless it sponsors a self-insured health plan.
And while all large employers are subject to the reporting requirement, those with a self-insured health plan must report additional information pertaining to covered dependents as well as to all full-time employees.
Ultimately, if self-insuring presents a more affordable solution to an employer’s health plan, the advantages will likely far outweigh the potential drawbacks of increased liability and responsibility — especially with the proper safeguards in place. ●