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Partially Self-Funded Medical 101 -
2010-04-30 11:09am
Healthcare: Moving Forward
Employers today are facing huge rate increases on their employee benefit plans, specifically on their medical insurance. The increases will more than likely continue if not accelerate due to the newly passed healthcare reform legislation and the mandated benefits that the legislation will require. Increasingly, employers are seeking innovative solutions to help them with the growing problem that is their healthcare plan.
Options
When looking to buy a health insurance plan, companies have two main options which are:
1) Fully insured plans
2) Partially self- funded plans
Fully insured plans are where an employer pays a fixed amount (monthly premium) and the insurance company assumes the claims risk and the responsibility for claims adjudication and payment. The costs that go into a fully insured plan include:
- Admin expenses, including:
- General admin
- Pooling cost
- Paid claims
- Reserves for Incurred claims that have
not yet been filed
- Profit
Partially Self-Funding 101
Partially self-funded plans are where the insurance company and the employer share risk. Employers pay a reduced fixed cost to transfer the administrative responsibility and a portion of the claims risk. The employer will have a cap placed on their risk that is separated in two distinct ways but that work together. They are:
- Individual/ specific stop loss: this is the maximum risk the employer has on any one individual in the group
- Aggregate stop loss: this is the maximum total risk the employer has and provides protection for the employer against the risk of the total claims exceeding a predetermined level for the entire group (employees & dependents)
If either the individual/ specific stop-loss or the aggregate stop-loss is reached the insurance company will take over paying the claims.
Benefits of Partially Self-Funding
Sometimes business owners ask us why should they consider partially self-funding? The answer is simple as there are many benefits to self-funding such as:
- Greater plan flexibility: you control your own plan
- Risk management choices- you can choose the various reinsurance options, wellness programs, disease management, etc.
- Avoidance of state mandates
- Gives you more control over your cash flow
- Access to detailed information: the information is yours not the insurance companyâs
- Reduced premium tax and risk charges
- Saves you money since youâre not paying a carrier who is charging more to maintain profit levels
Who The Solution Works For
While most employers that have 500 or more employees see the benefit and choose to self-fund, this solution is not only for the larger companies. Here are some statistics of smaller size companies:
- 6% of firms with 10-49 lives self-fund
- 37% of companies with 50-199 self-fund
- 60% of companies with 200-499 self-fund
In conclusion, partially self-funding is a great way to save money, manage your risk, and control your plan.
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