Self-Insurance Plans
Self-Funding: Introduction
A typical fully insured health plan is one where the employer pays fixed yearly premiums to an insurance carrier. The premium is received in advance by the carrier and covers potential claim costs, insurance company overhead, commissions, reserves, risk insurance and taxes.
Today, an overwhelming majority of employers are opting to self-fund their healthcare plans. With a Self-Funded healthcare plan an employer can customize the plan to meet specific goals, and accrue significant cost savings.
In a self-funded plan, an employer assumes some or all of the risk and responsibility of providing health benefits to its employees. The employer maintains control over the plans assets’ and retains them until they are needed to pay claims.
This all translates into the ability for the employer to reduce or avoid insurance company overhead charges, commissions, profit margins, and premium taxes.
Self-Funding: How it Works
In a self-funded plan, the employer assumes the responsibility for financing the plan. Claims are processed by a Third Party Administrator, who also provides customer service, plan eligibility and account management.
The cost is usually less than a fully insured plan because an employer directly funds the majority of healthcare costs. Stop-loss coverage is often purchased to protect self-funded health plans from high claims exposure. This coverage provides a ceiling on the financial risk of insuring a Self-Funded plan.
Stop-loss coverage advances or reimburses the employer for individual claims that are in excess of the specific deductible and/or aggregate claims in excess of the aggregate attachment point.
Stop-Loss Cover
Most employers purchase stop-loss coverage to protect plan assets and mitigate adverse risk. International Benefits Administrators assists our clients in establishing the proper risk exposure and tolerance. Once those parameters have been identified, we begin to negotiate the best stop loss rates for our clients.
Specific Stop-Loss
Protects against individual catastrophic paid claims that exceed a specific dollar limit that you chose. A client determines this trigger point up to which they want to assume the risk. The specific coverage is set up to advance or reimburse, for an individual’s covered expenses beyond the specific deductible.
Aggregate Stop-Loss
Protects against total paid claims exceeding a predetermined combined total dollar limit. The stop-loss carrier determines the aggregate deductible. The factors used are based on the employers' population, plan design and claims experience. If total paid claims exceed this aggregate deductible, the carrier will reimburse the excess. This protects the employer from going over a certain budgeted dollar amount.
Stop-Loss Contracts
In addition to choosing specific and aggregate limits, additional protection can be secured through various contract types, and optional riders. Stop-loss contracts are defined by the period of time in which claims are incurred and paid. The time between the date a claim is incurred and the date it is paid, is referred to as claim lag. Claim lag is a major factor in determining contract type.
12/12 (incurred in 12/Paid in 12)
Covers claims incurred during the 12 month contract period & paid during that 12 month period.
15/12 (incurred in 15/Paid in 12)
Covers claims incurred during the 12 month contract period plus the prior three months run-in period and paid during the 12-month contract.
12/15 (incurred in 12/Paid in 15)
Covers claims incurred during the 12-month contract period and paid during the 12 month contract period plus three months immediately following it.
Paid
Covers claims paid during the 12 month period, regardless of the date when the claim was incurred.
Stop-Loss Contracts: Optional Features
A client may also opt to choose one of several riders. These riders may provide added value to the stop-loss coverage. The most popular riders are:
Specific Terminal Liability
Extends the specific stop-loss coverage to cover eligible claims that were incurred while the plan was active, but are paid within a certain period of time (usually 90 days) after a contract period ends.
Aggregate Terminal Liability
Extends the aggregate stop-loss coverage to cover eligible claims that were incurred while the plan was active, but are paid within a certain period of time (usually 90 days) after a contract period ends.
Specific Advance
Provides employers with advanced funding for catastrophic individual claims.
Aggregate Accommodation
Designed to protect an employer during months when claims are unusually high. It provides the client with a monthly claim payment maximum. Any claims over the maximum are paid by the stop loss carrier.
Claim Calculation
The fully insured Loss Ration calculation for renewals. Includes all Large claimants over the pooling point as well as other plan fees. The calculation for Self-funding purposes does not include these claims or fees in its calculation.
Profit
Profit is essential for insurance company existence. With a self-funded plan there is no retention and overhead costs charged by an insurer. The employer simply pays fixed costs and claims. An Insurers profit is generally 2-4% of premiums.
If you are considering a Self-Insurance plan for your business please contact us.