Presented by David L. Fear, Sr. RHU Shepler & Fear General Agency Approved CE Course No (The California Association of Health Underwriters)

Transcription

1 Presented by David L. Fear, Sr. RHU Shepler & Fear General Agency Approved CE Course No (The California Association of Health Underwriters) 1

2 Course outline Brief history & recent developments How does self funding work? Regulatory Issues Some pitfalls Self Funding & HMO s? Role of the Agent Making a comeback? 2

3 A brief history 1950 s changes in tax code allowed employers to deduct costs of self insurance mechanisms 1974 ERISA (Employee Retirement Income Security Act) opened the door to employers of all sizes to set up self funded plans 1980 s stop loss market began to expand products available 1990 s slowed down as managed care shifted risk to providers from employers 3

4 Recent developments Last 20 years States have tried to overcome ERISA preemption of self funded plans in their health reform activities PPACA signed into law in 2010, still permits self funded plans to operate and still holds them to Federal rules, however: Requires the Secretary of HHS to prepare an Aggregate Annual Report of all self funded plans from their 5500 filings to the U.S. Congress 4

5 Alternative Funding Transition Steps 5

6 How does Self Funding work? Employer takes funds previously paid as fully insured premium and places into a Plan account (trust if employee monies are included) Out of the account, three expenses are paid: Self Insured Claims Premium For Excess Loss Insurance Fees for Administrative and Management Services 6

7 Stop Loss Insurance - 1 Specific Stop Loss Reimburses the employer s fund when an individual claim exceeds a retention (deductible) level $25,000 to $250,000 levels Reimbursement provisions are based on when a claim is incurred and paid with a 12/15 incurred & paid contract being typical Generally covers only medical expenses Aggregate Stop Loss Reimburses the employer s fund when the aggregate total of all claims exceed the aggregate attachment point at year s end Attachment Point is usually 25% higher than expected claims Excludes Specific Stop Loss claims Can include medical and ancillary benefits Can provide a monthly reimbursement feature 7

8 Stop Loss Insurance - 2 Aggregate Stop Loss Attachment Point: Employer has 100 employees, and past 12 months of paid claims were $250,000 = Average of $ per month (composite) Trend factor of 1.22% is added = $ % Risk Corridor is calculated = $ Aggregate factor is $ x 100 employees x 12 months or $381,252 (this is adjusted based on actual enrollment headcount over the 12 month period, so can be higher or lower most carriers have a minimum floor ) 8

9 Stop Loss Insurance - 3 It is important to know that Stop Loss Insurance is a policy that is issued to the employer s plan and does not provide benefits directly to covered persons (like a health insurance policy) it reimburses the employer s plan Stop Loss Insurance coverage is based on the terms and conditions of the employers PLAN DOCUMENT and usually requires pre-approval of the Plan Document prior to issuance of the Stop Loss policy Typically Stop Loss Insurance is available for groups with as few as 50 employees and generally has a participation requirement similar to a fully insured plan (i.e. 75%) 9

10 Stop Loss Insurance - 4 Risk exposure considerations Typically, Specific Stop Loss deductibles increase with group size The combination of Specific and Aggregate is better for smaller risks, while larger risks purchase Specific only Various contract features, retention (deductible) levels, underlying plan document, will have effect on the price for coverage Stop Loss is not for the cash flow challenged and is not a high deductible health plan!! 10

11 Plan Administration - 1 Plan administration is the most critical part of self funding: The Plan may contract with an Insurer for Administrative Services Only (ASO) Or may contract with a licensed and bonded Third Party Administrator (TPA) Typically, TPA fees are less expensive than Insurers ASO fees The employer is still the Administrator of the Plan and liable for the plan s benefits and features 11

12 Plan Administration - 2 Most TPA s can assist in drafting the Plan Document, Summary Plan Descriptions, and any initial filings Most TPA s can prepare annual tax reports and 5500 s to the Federal Government Most TPA s can handle compliance issues related to COBRA and HIPAA as well as other Federal benefit mandates Most TPA s can provide numerous plan reports on periodic basis including paid claims analysis, check reconciliation and stop loss claims status reporting 12

13 Plan Administration - 3 The most important part of a TPA s job is to pay claims accurately and in accordance to the Plan Document and Stop Loss Insurance policies Most TPA s have contemporary claim payment systems that integrates with eligibility and provider network contracts Most TPA s will provide performance reports which the employer may include in the contract with the TPA TPA s provide the third party barrier for the employer to avoid privacy issues with employees & dependents 13

14 Claims Management - 1 The largest and most important cost component of a self funded health plan are claim costs The Plan Document is the rule book and the TPA is the referee the Stop Loss Insurer depends on those to reimburse stop loss claims A well written Plan Document is required in order to have the right plan design in place There is no off the shelf plan design 14

15 Claims Management - 2 ERISA plans are not subject to State benefit mandates Multiple State offerings are much easier in a self funded plan Health care can be a very local issue, which must be addressed Self Funding & Managed Care has worked for 30+ years Broker/Consultants bring a wealth of plan design knowledge to the table! 15

16 Claims Management - 3 Most Plans have contracts with provider networks national, regional and/or local to provide for best possible price for services Most Plans contract for Utilization Review services to see that Plan benefits are used properly and efficiently Most Plans feature benefit incentives or disincentives to steer participants into cost efficient and quality effective provider networks 16

17 Claims Management - 4 Plan designs can include Passive PPO without incentives Strong PPO with disincentives EPO or HMO network only POS plans multi-location needs Provider contracting is a key element of consideration The nature and scope of hospital or facility discounts The strength of physician payment schedules The integration of provider and utilization management tactics 17

18 Claims Management - 5 At a minimum a self funded plan should have: Provider network incentives for physician, facility and prescription drug services Integrated utilization review linking providers, claims administrators into a seamless system that produces quantifiable results 18

19 Regulatory Issues - 1 ERISA pre-empts State regulation of single employer, self funded plans They are subject to Federal mandates such as COBRA, HIPAA, etc.. Some States have succeeded in taxes of benefits (i.e. New York) or in getting ERISA waivers (Hawaii) PPACA specifically addresses self funded plans (annual aggregate report by DHHS to congress) This may lead to additional Federal regulations of self funded plans Self Funded Multiple Employer Welfare Arrangements (MEWA s) were handed back to the States in 1982 for regulation States have done a poor to fair job in regulating them with numerous incidents of fraud and abuse 19

20 Some Pitfalls Improper funding of a Plan not enough reserves or poor cash flow Benefit designs that don t curb utilization or steer participants into provider networks Insufficient provider contracting both quality and quantity of providers Adverse selection on the part of participants and plan choices including HMO offerings Poor management oversight by the employer, the consultant/agent, and/or the TPA (don t read reports) Deficient administrative services including customer service, claims turnaround, provider relations and incorrect claims payments Purchasing the wrong Stop Loss Insurance coverage Failure to periodically bid out service providers (TPA, Stop Loss Insurance, etc..) and resulting overpayment 20

21 Self Funding & HMO s Employer can shift some risk over to an HMO, but may create an adverse selection situation in doing so: Will the younger, healthy employees opt for the HMO Will older, sicker employees gravitate to fee-for-service Some debate between Finance and Human Resources: Finance wants younger, healthier risks in the self funded plan, would like to move older, sicker risks to the HMO HR wants employees to have choices of providers and plans offered regardless of cost issues Administrative wants simplicity in terms of eligibility and payments Most Stop Loss Insurers will want 50 75% participation if offered alongside of an HMO 21

22 The role of the agent-broker - 1 Self funding gives you an opportunity to demonstrate your value as a professional Resources are available to assist you in evaluating funding, administrative and insurance options ERISA requires a full disclosure of your fees and commissions 22

23 The role of the agent-broker - 2 Agents compensation may come from: Commission from the sale of Stop Loss Service fees collected through the TPA Most agents will provide value-added services including bi-lingual enrollment, HR and Management tools 23

24 Self Funding making a comeback? Insured plan costs have increased 57% over the past five years and don t appear to be lessening in spite of PPACA Higher deductible arrangements (i.e. Section 105, HRA/HSA) are becoming more accepted PPACA rules related to MLR will increase premiums even more as carriers increase provider payments to increase their retention costs Employers with a healthy workforce are not going to like the insured pooling arrangements that are being forced upon them Stop Loss insurers are looking at the under 100 market as a growth area Many employers like the flexible plan design concept and the fact that they don t pay State insurance premium taxes on their self funded plans Some employers will take initiative and look at cost containment as their responsibility and not the insurer s Many signs point to an increase in the number of self funded arrangements between now and

25 This course was co-sponsored by 25