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1 Chapter 1 : Fully Insured Plans vs. Self Insured Plans Q. What is a self-insured health plan? A. A self-insured group health plan (or a 'self-funded' plan as it is also called) is one in which the employer assumes the financial risk for providing health care benefits to its employees. Among large employers, the number is even higher, with 82 percent self-insuring at companies of more than employees 2. Several major hospitals have converted to self-insurance with the realization that it is more cost effective to become self-insured than it is to pay insurance premiums 3. The key advantages over fully insured plans become evident when business leaders examine the potential for cost and utilization control, improved cash flow, flexible plan design and access to data and benchmarking. When self-insuring, employers pay for individual employee health claims out of cash flow rather than as a monthly fixed premium to a health insurance carrier. Instead of paying premiums to insurers, they pay claims filed by employees and healthcare providers. While self-insured employers assume the direct risk for payment of claims, costs are based on actual plan member healthcare use and catastrophic claims are covered by stop-loss coverage. This type of coverage serves as a financial buffer for the employer if, for example, an employee is found to have cancer or needs an organ transplant. Furthermore, self-insured companies do not have to offer government-mandated "essential health benefits," allowing them to tailor benefits to the needs of the organization and the demographics of its workers. Comprehensive coverage for health benefits package 2. Jurisdiction of state ombudsmen 3. Ensuring that consumers get value for their dollars through annual rate reviews of insured products Furthermore, the PPACA does not subject self-insured health plans to the jurisdiction of the states, while other plans must comply with the varying coverage mandates, insurance statutes and state regulations. For the most part, self-insured plans are not subject to litigation in state courts or the appeal and complaint procedures of the state insurance departments. Other key reasons to self-insure 4 1. With a benefit plan aimed at promoting domestic utilization, hospitals can maximize the care and revenue that remains within the organization. With the assistance of a healthcare management firm, hospitals can administer customized domestic fee schedules, allowing the organization to set its own reimbursement and become less dependent on local health plans, as well as able to eliminate conflicts of interest. With a self-insured benefit strategy, employers pay for claims as they are incurred rather than paying an upfront, fixed premium to an insurance carrier. With the flexibility afforded by self-insuring, hospitals have even more opportunity to manage plan costs. In addition to the cost savings associated with domestic network use, self-insurance allows hospitals to leverage existing resources in the execution of health management and wellness programs. By doing so, hospitals can avoid duplication of efforts with their benefits administrator while maximizing the use of domestic clinicians, initiatives and facilities UMR, Many fully-insured carriers cannot provide detailed plan data. By taking advantage of the online tools offered by healthcare management firms, employers can allow plan sponsors to review claims and utilization data. This data enables benefit plans to be evaluated and strategies revised as needed. In addition, detailed data on domestic and international services allows hospitals to increase competitiveness by helping them identify business development opportunities to better meet demand. Furthermore, self-insurance offers the kind of practical and economic advantages that curb costs, such as the following: Helping organizations tailor plans to the specific health needs of a workforce population, especially if guided by the right healthcare management firm 2. Generating as much as 3 percent immediate savings because state taxes are eliminated on most self-insured plans 3. This is a marked improvement over the typical one-size-fits-all network. A growing number of employers seek this type of a national network. It offers the most competitive discounts through strong regional networks, as opposed to costly out-of-network charges or the one-size-fits-all approach where broad national networks may be weak in certain geographies. The goal is to deliver the best outcomes in specific locations throughout the United States with a competitive product focused on service and care coordination. In addition, these local networks take into account the local culture and reflect care delivery models that vary from region to region. Furthermore, a national network solution should be seamless and offer a broad range of options for members while meeting employer demand for consistent national benefit administration and deep discounts. A single-network access Page 1

2 fee for all network partners can be a key advantage for self-insurers, especially if it is based on a pricing strategy that capitalizes on regional pricing rather than assessing additional fees to access each network, as is common for most national networks. In addition, it is critical that the network is transparent and easy-to-use. Participants present a membership card and primary medical ID card to providers in any of the participating networks. Plan choices should be consistent across all networks, while the locally based networks allow for regional healthcare care utilization and management patterns. Self-insurance enables hospitals and other employers to offer quality, cost-effective healthcare at a time when many employers are forced to cut costs, often at the expense of their workforce. Furthermore, the growth in self-insurance across the country offers regional hospitals an opportunity to provide "in-network" healthcare to "out-of-network" employees. This is significant given that employers and employees alike are focused on cost and avoiding unpredictably higher out-of-pocket costs in the wake of healthcare reform. In this capacity, Mr. Berardo originally joined the company as vice president of sales and marketing in January Berardo started his career in healthcare with U. Berardo has authored numerous articles related to health plan strategies for employers and brokers. MagnaCare has experienced dramatic membership, revenue and earnings before interest, depreciation and amortization EBITDA growth under his leadership, positioning the organization as one of the largest regional Health Plan Services companies in the country. He is also an active supporter of the academic and athletic programs of his three children. The New York Times. Self-insured complicate health deal. Five reasons hospitals should consider self funding. Page 2

3 Chapter 2 : Home - Members Health Plan With a self-insured plan, the employer assumes most of the financial risk related to health insurance, often securing stop-loss coverage from an insurer only to cover unexpectedly large or. Group Benefits No Comments For business owners, choosing a health insurance program for employees involves more than simply choosing an insurance company and comparing costs; employers also need to consider whether to choose a fully-insured plan or to self-insure. When evaluating options and looking at fully-insured vs. Instead, there are pros and cons associated with either option. The best choice for your business will depend on several factors. Understanding the Difference Between Fully-Insured and Self-Insured Programs To an employee, a fully-insured health insurance plan should look and feel just like a self-insured plan. However, there are a few key differences business owners and leaders should understand before choosing one type of health insurance plan over another. Fully-Insured Plans With fully-insured plans, the employer pays annual policy premiums to the insurance company. The amount of the premium payment varies but is generally based on the type of policy chosen and the number of employees to be covered under the plan. The insurance company pays claims that are covered under the terms of the policy, while the employer is only responsible for paying the policy premiums. Fully-insured plans provide some financial certainty for the employer because the insurance company is assuming the risk. There are also very few administrative expenses related to the plan because the insurance company handles everything. Self-Insured Plans In contrast, under a self-insured health plan, employers essentially act as their own health insurance company. Rather than paying premium payments to an insurance carrier, the business retains those funds, paying an insurance company or plan administrator to handle administrative tasks and claims management. When to Choose Fully Insured vs. Self-Insured Deciding to offer employees fully-insured vs. Fully-insured plans are the more traditional option. Self-insured plans generally work well for companies looking for more customization of, and more control over, the plans they offer workers. Employers who choose self-insured plans like the fact that self-insuring creates the potential for lower out-of-pocket costs, both for the business and for employees participating in the plan. Large businesses tend to prefer self-insured plans over fully-insured options. However, small- and mid-sized businesses can also choose self-insured health plans. Businesses of any size whose workforces are made up primarily of young, generally healthy workers may end up realizing significant cost savings by self-insuring if claims are few and relatively low. Even young, seemingly healthy employees may have significant health care expenses. One protection for any company offering a self-insured plan is to purchase stop-loss insurance. This type of policy says that the insurance company will pay claims that exceed a predetermined amount. Which Option Works for Your Business? Choosing a self-insured or a fully-insured health care plan for your business is a major decision. While fully-insured plans may be attractive because they allow businesses some budget certainty when it comes to health care costs, self-insured plans can ultimately be more cost-effective in the long run. KORE Insurance Holdings Can Help Your Company The bottom line is that while one company may find that choosing either a self-insured health insurance plan is most advantageous, another similarly sized company in the same industry might determine that a fully-insured plan is the best fit. Reviewing options and making decisions about whether to choose a fully-insured vs. At KORE Insurance Holdings, we work with businesses of all sizes, in a variety of industries, helping them design and implement health insurance and other employee benefits programs designed to help them attract and retain high-performing talent, while keeping benefit program costs in check. To learn more about how we can help, contact us online today, or call us at Page 3

4 Chapter 3 : Self-insurance - Wikipedia Self Funded Plans. A self funded healthcare plan, sometimes referred to as a self insured, or partially self funded healthcare plan, is a healthcare plan in which the employer assumes the financial responsibility for providing health care benefits to its employees. Health plans[ edit ] In the United States, a self-funded health plan is generally established by an employer as its own legal entity, similar to a trust. Similar to in traditional insurance, the plan sponsor determines the cost of health coverage and generally requires different payroll deductions depending on whether an employee elects self-only coverage, self plus spouse, self plus spouse plus child ren, or certain other permutations as determined by the plan sponsor. Self-funded health care allows some flexibility in structuring a benefit plan; some plans allow fewer options, for example only a choice between self-only coverage and full family coverage, with two contribution tiers. Affordable Care Act[ edit ] The Affordable Care Act has had huge ramifications on self-funded health plans; market reforms have invalidated many plan designs that were previously used, and now that employees are required to have health insurance and many employers are required to offer health benefits as well, [1] the self-funded industry has enlarged. ERISA neither requires an employer to establish a pension plan, with few exceptions, [2] nor dictates what benefits must be offered; instead, it requires that employers who establish plans meet certain minimum standards. The law is designed for the protection of plan participants, and to ensure a uniform statutory body of law regulating applicable benefit plans, throughout every jurisdiction in the country. Plan sponsor and plan administrator[ edit ] There are two primary entities involved in the formation and administration of a health plan â the plan sponsor and the plan administrator. These terms are defined separately and the difference is important. While the duties of a plan administrator may be delegated to an entity other than the employer, the law invariably requires that the employer be considered the plan sponsor. The plan administrator is always a plan fiduciary; the plan administrator can share the fiduciary duty with other entities, but the plan administrator is required to assume some fiduciary duty and cannot disclaim that duty. In general, the plan administrator is the employer â but new trends in the industry are seeing more and more groups outsourcing plan administrator duties to TPAs or other entities for a fee. Employers that sponsor self-funded insurance plans often contract with a third-party administrator TPA, which is an entity that provides ministerial services on behalf of the health plan and the plan sponsor. Traditionally, TPAs do not make discretionary claims determinations; if a determination requires interpretation of the governing plan document, most TPAs do not make it but instead require the plan administrator to provide its own determination. This is because a fiduciary duty is incurred by any entity that exercises discretion over plan assets or in connection with making a binding determination under a health plan. According to ERISA, no matter which entity is identified as a fiduciary within the health plan, any entity will be considered a fiduciary if that entity acts as a fiduciary in a given case. Contrast to traditional insurance[ edit ] Traditional insurance is, in general, a way for individuals to manage the risk of their health care expenses. All risk transfers to the insurer; no matter how much is racked up in eligible claims, the insurer bears the risk of paying those claims and the insured can rest easy knowing that he or she will not be responsible. In self-funded health care, plan sponsors have broad discretion to determine what terms will be used in the plan, as well as to decide which entities will have the authority to make benefits determinations, factual determinations, appeals determinations, and language interpretations. In traditional insurance, those responsibilities and risks are all borne by the insurer. Part of every insurance premium is allocated to the payment of health claims, and part is allocated to profit for the insurance company. Profit generated by a traditional insurer comes directly from the policyholders, while a self-funded health plan is, or is funded by, a trust. Self-funded health plans pay health claims out of plan assets; there is no element of traditional insurance on these programs, and the employer assumes all additional liability for claims that have not been paid by plan trust assets. Some health plans have no plan assets; known as an unfunded plan, a plan with no assets is funded solely from the general corporate assets of the plan sponsor. Plan assets can never inure to the benefit of the plan sponsor. Once funds become plan assets â whether through payroll deductions from employees or Page 4

5 employer contributions to the plan â those assets invariably belong to the plan. Due to the limited assets at the disposal of an average employer as compared to an insurance company, an employer could easily bankrupt itself if its employees incur a large number of high-dollar claims and the employer is unable to fund them all. This risk is where the concept of stop-loss insurance comes into play, as it provides the employer with an additional source for funding to pay for catastrophic losses. Smaller managed care organizations also may purchase stop-loss insurance to protect themselves from the risk of catastrophic claims loss, but larger insurance companies, such as those that more commonly provide fully insured policies to employers, typically have a large enough pool of assets to be able to assume all of the risk of paying claims. Most employers, however, have a tangibly limited pool of assets. In general, the premium does not change except in certain specific instances, such as, most commonly, a change in the number of covered employees. The insurer collects the premiums and pays the health care claims based on the benefits in the health insurance policy that was underwritten and purchased. The employees are responsible to pay any deductibles or co-payments required under the policy. Even with stop-loss insurance, the employer still retains one hundred percent of the risk of claims payments, in a purely self-funded scenario. Stop-loss insurance reimbursements are made if the claims costs exceed the catastrophic claims levels in the policy, but if a stop-loss carrier became defunct or simply breached the contract, there would be nothing alleviating the self-funded plan from responsibility for the full amount of claims. State regulation[ edit ] While ERISA preempts some state laws that relate to self-funded employee benefit plans, ERISA does not regulate stop-loss insurance, since stop-loss insurance does not protect employees but instead protects a health plan itself or the employer. With this in mind, the sponsor can craft plan provisions to cover certain benefits and exclude others as it sees fit. Less is sometimes more, a Plan which covers the services its employees will likely need and excludes the others will have much lower cost. As described above, employers that choose to sponsor a self-funded health benefits plan truly do so at their own risk. To be self-funded, the employer necessarily retains one hundred percent of the risk of the payment of the health benefits claims of plan participants. The practical effect of that is that many small groups simply cannot afford to self-fund; a common theory is that groups with too few employees are unable to collect a contribution sufficient to allow the employer to pay health benefits claims without bankrupting itself. Another major risk of self-funding is that the obligation to make claims determinations falls upon the Plan Administrator, which is most commonly the employer. Sponsoring a self-funded plan has its risks, but it also has its rewards. While the group may incur unexpectedly catastrophic claims amounts, stop-loss is designed to mitigate those claims. As is demonstrated by these statistics, self-funded health plans are rooted in the same underlying mathematical principle as insurance in general: Larger employers have more plan participants over which to spread the risk loss and are therefore able to more accurately predict and budget for the cost of the plan. In contrast, an employer with only 50 employees has a small number of participants over which to spread the risk and therefore may experience wide fluctuations in plan costs as the result of covered losses from only a small number of participants. MEWAs are useful for small groups that on their own would not be able to self-fund; for instance, a number of local small businesses, each with a dozen employees, can pool their assets, form a MEWA, and offer a self-funded plan as successfully as one company with the same number of total employees. The benefits included as welfare plan benefits are broadly described and wide-ranging. Virtually any type of health, medical, sickness, or disability benefits will fall into this category, regardless of whether the benefits are offered pursuant to a written instrument or informally, funded or unfunded, offered on a routine or ad hoc basis, or limited to a single employee-participant. In general, a state law would be inconsistent with the provisions of Title I to the extent that compliance with such law would abridge an affirmative protection otherwise available to plan participants under Title I or would conflict with any provision of Title I, making compliance with ERISA impossible. Similarly, a state insurance law that would require an ERISA-covered plan to make imprudent investments would be inconsistent with the provisions of Title I. Conversely, a state insurance law generally will not be considered inconsistent with the provisions of Title I if it requires ERISA-covered plans constituting MEWAs to meet more stringent standards of conduct, or to provide more or greater protection to plan participants and beneficiaries than required by ERISA. The Department of Labor has expressed the view that any state insurance law which sets standards Page 5

6 requiring the maintenance of specified levels of reserves and specified levels of contributions in order for a MEWA to be considered, under such law, able to pay benefits will generally not be considered inconsistent with the provisions of Title I. The Department of Labor also has expressed the view that a state law regulating insurance which requires a license or certificate of authority as a condition precedent or otherwise to transacting insurance business or which subjects persons who fail to comply with such requirements to taxation, fines and other civil penalties, would not in and of itself be considered inconsistent with the provisions of title I. It is unclear whether some states treat these particular MEWAs differently due to the government funding of the schools or the public interest served, but some states have lowered the enforcement or standards or other requirements for these MEWAs. Captives[ edit ] Rather than a co-op, as each of the previous sections has described, a captive is a subsidiary created to provide benefits to its parent company or companies â although when a captive is offered by more than one employer, the captive is a form of co-op. Captives present risk-management resources for employers who provide self-funded health plans to their respective employees. As is the case with all self-funding arrangements, when a self-funded health plan is offered by a captive, the captive, as opposed to any one particular employer, bears the risk. Shock loss is the direct loss that is borne by a self-funding entity; if a self-funding entity has purchased stop-loss, amounts of shock loss that rise above an amount known as the specific deductible are covered by the applicable stop-loss policy. Under the captive model, the parent companies do not themselves offer health plans. Instead, the captive is the only entity offering, sponsoring, and maintaining the self-funded health plan. Accordingly, the captive bears the risk of shock-loss. A captive increases the ability of a group to properly manage risk. Page 6

7 Chapter 4 : Lists of Self-Insured Employers Most importantly, additional analysis will allow us to determine the number of persons who are covered by self-insured health plans and the size of their health benefits. Knowing this, we should be able to reestimate the share of personal health expenditures paid by self-insured health plans and purchased insurance. When employers are considering offering a new health plan, they need to consider how the plan will be funded. Some employers choose to fund the whole plan, while others lean towards allowing the employees to fund the plan themselves. Other employers may choose to administer the plans themselves rather than using an insurance company. There are benefits and drawbacks to each option, and employers need to consider all of their options before making a decision. An essential part in the decision making process is to understand the differences and similarities between the two major types of plans. What is a Fully-insured Health Plan? Fully-insured plans are more traditional than self-funded plans. However, fully-insured plans are generally more expensive for employers, as the name implies. The employer pays the premium directly to the insurance company, and the premium is set on an annual basis. The premium is based on the number of employees that the employer has, and those rates could change if the number of employees also changes. The premiums will also vary depending on the type of policy that the employer chooses as well. The only thing that the employees would be responsible paying for are deductible amounts or co-pays according to the policy. Of course, the employer can also require the employee to pay a portion of the premium, which can be common. Advantages of Fully-insured Plans The following are a few advantages of this type of plan: Less risk because the insurance company deals with the claims No need to deal with the administrative expenses related to a health plan Works best for smaller employers that do not have the time or finances needed to deal with having their own insurance plan What is a Self-funded self-insured Health Plans? Larger employers are much more likely to have a self-funded plan. This option is cheaper for employers because they do not have to pay for the separate insurance carrier. Removing the insurance carrier also means that the employer is open to much higher risk than they would have been under a fully-insured plan. This is because that the company is essentially acting as their own insurance company. To curb what could be very high, unexpected expenses, employers occasionally take out an additional insurance, such as an excess coverage plan. An essential part in the decision making process is to understand the differences and similarities between fully-insured and self-funded plans. Advantages of Self-funded Plans The following are few advantages of this type of plan: Employers can customize the plans that they offer to their employees There are few state regulations that you need to worry about Potentially lower costs for both you and your employees Additionally, a major advantage to a self-funded plan is that you have a lot more control over not only what kind of coverage that you offer to your employees, but also the administrative aspects of the plan. There is no more waiting for the insurance company to get back to you because you can do everything in-house. For some larger companies that can handle that type of responsibility, using a self-funded plan makes sense. Generally, when your company moves things like insurance in-house, they are less expensive as well. However, it is worth noting that managing this process in-house is much easier said than done. Partially Funded Self-insured Plans If your business is trying to cut on costs, without committing to a completely self-funded plan, you might want to consider other alternatives. The employer would increase the deductible, and then reimburse their employees for that increase by using the HRA. The employer ends up self-insuring the deductible, but still saves costs because most employees will not actually use the much higher deductible. This is also a version of self-insurance where the employer reimburses their employees for their individual health insurance premiums, instead of actually offering their own plan. This arrangement cuts out administrative costs and hassles, something a smaller employer should consider. Different Businesses Have Different Needs Each business has different goals for their health plan, and financial goals are often particularly important. Finding the right plan requires an in-depth discussion with a benefits consulting firm whose experts can tell you which plan will work best for your business. The experienced consultants at The Business Benefits Group can help you understand the differences between self-funded and fully-insured plans, and help you to determine which best Page 7

8 suits the needs of your organization. Page 8

9 Chapter 5 : What is Self Funding? Employee Benefits The Buying Power Of A Member-Owned Health Plan. The MHP is a multiple employer self-insured health benefits trust designed to help Texas law firms better control the increasing costs of healthcare without sacrificing access and quality of care. How to weigh the pros and cons of self-funded vs. Should a company choose to be fully insured, or should it opt to be self-insured? What is the difference between self-funding and fully insured? The traditional definition of self-funding is when a company pays for its own medical claims directly, usually while a third-party administrator TPA processes claims, issues ID cards and performs the function of a health plan. In contrast, when a company chooses to be fully insured â the more common option for smaller businesses â the company pays a set premium price to the carrier that is fixed for the year and is based on the number of employees enrolled each month. The insurance company assumes the financial and legal risk of loss if claims exceed projections. Can small companies afford to be self-funded? Companies with fewer than employees are often afraid that they will be exposed to too much risk with a self-funded plan. However, smaller companies can still afford to be self-funded because they can purchase stop-loss insurance, which limits the amount of claims expenses an employer would be liable for, per covered employee, per year. This protects a company against some sort of catastrophic event involving one or more employees. What are the advantages of self-funding? The most obvious advantage is paying for actual claims incurred by your employees. Any positive results that come from a company instituting wellness programs and smoking cessation campaigns can have a direct result on the bottom line. Also, a company can easily obtain a company-specific claims report that can reveal, for instance, what percentage of claims are out-of-network, and how much is being spent on emergency room visits. This kind of information can provide direction when it comes to customizing benefit changes. What are the advantages of fully funded plans? Cost certainty is a major one. You know at the beginning of the year what will be your health care costs and they remain in place until a new deal is struck. Also, the health insurer assumes all of the risk and the company is spared any exposure. What are some disadvantages to self-funding? Self-funded plans that greatly exceed anticipated costs can create problems. Although stop-loss coverage can protect an employer from paying excessive claims in a given year, after a major incident, the cost of the stop-loss coverage the company purchases is likely to rise. It may also be more difficult to get lower rates from other stop-loss providers. Moreover, higher-than-expected claims in self-funded plans can make it more difficult to return to a fully funded plan later. And, any organization that chooses to run a self-funded plan internally, rather than use a TPA, can run up higher-than-expected administrative costs. Self-funding is not a quick fix and savings are not always guaranteed or immediate. In order to make a good decision, you need to study past coverage utilization, cash flow and the health status of the employees being covered. Page 9

10 Chapter 6 : Fully-Insured vs. Self-Insured Health Insurance: Which Is Best? Self Insured Plans, LLC, is a family owned organization with more than 40 years of employee benefits experience. Our ability to make timely decisions for flexible plan design makes SIP unique in a world of look-alikes. Being self-insured provides both benefits and new responsibilities By: 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. 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 â even if only for dependent coverage â the law requires those contributions be held in a trust, separate from the general assets of the company. 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 and IRS reporting requirements that come due in early 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. Page 10

11 Chapter 7 : Self-funded health care - Wikipedia Self-Insured Plan Type of plan usually present in larger companies where the employer itself collects premiums from enrollees and takes on the responsibility of paying employees' and dependents' medical claims. What is Self Funding? Self Funded Plans A self funded healthcare plan, sometimes referred to as a self insured, or partially self funded healthcare plan, is a healthcare plan in which the employer assumes the financial responsibility for providing health care benefits to its employees. The employer is responsible for paying claims as they are incurred instead of paying a fixed premium to an insurance carrier. What are the Benefits of Self Funding? You can customize the plan to meet the specific health care needs of your workforce, as opposed to purchasing off the shelf products in the traditional market. Many companies establish self insurance reserves. The self funded employer maintains control over the health plan reserves, enabling maximization of interest income - income that would be otherwise generated by an insurance carrier through the investment of premium dollars. You do not have to pre-pay for coverage, thereby providing for improved cash flow. Self Funded Plans are regulated under federal ERISA law and therefore are not subject to conflicting state health insurance regulations and benefit mandates. You are free to contract with the providers, provider networks, Pharmacy and Care Managers best suited to meet the health care needs of your plan and employees. You elect to fund risk up to a certain level. Beyond that point, reinsurance or stop loss is typically purchased to reimburse them for claims above a specified dollar level. For a more in depth look Stop Loss go to: Since a self-insured employer assumes the risk for paying health care claim costs for its employees, it must have the financial resources to meet its obligations, which can fluctuate. Therefore, employers with poor cash flow may find that self-insurance is not a viable option. Also, employers with a short term outlook may not be a good fit. It is statistically probable that self funding will save money over the long term and many employers do save money immediately. However, results can vary in the short term. Therefore employers should have a year commitment. A common but incorrect assumption is that self-funding is only for large employers. Sef-funded health plans can be prudently set up by smaller employers as well. Similar to our work with larger employers, RMA helps the smaller employer select the appropriate level of stop-loss insurance, which provides reimbursement for large catastrophic claims and aggregate claims. Who Administers the Plan? Their responsibility includes maintaining eligibility, customer service, adjudicating and paying claims, preparing claim reports, plus arranging for managed care services such as network access and case management. Page 11

12 Chapter 8 : What is a â œself-insuredâ health plan? Health Insurance - Sharecare Should a company choose to be fully insured, or should it opt to be self-insured? "Choosing the right kind of health plan is an important part of the success and growth of a company," says John Mills, senior director of consumer products at UPMC Health Plan. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. January Learn how and when to remove this template message The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. You may improve this article, discuss the issue on the talk page, or create a new article, as appropriate. No cleanup reason has been specified. Please help improve this article if you can. The terms of eligibility and covered benefits are set forth in a plan document which includes provisions similar to those found in a typical group health insurance policy. Many employers seek to mitigate the financial risk of self funding claims under the plan by purchasing stop loss insurance from an insurance carrier. These policies typically provide for risk retention limitations both on a specific claim and aggregate claims basis. An important aspect of self funded group health plans lies in the requirement that the employer remain liable for funding of plan claims regardless of the purchase of stop loss insurance. In other words, only the employer has a contractual relationship with plan participants and beneficiaries. The stop loss policy runs solely between the employer and the stop loss carrier and creates no direct liability to those individuals covered under the plan. This feature provides the critical distinction between fully insured plans subject to State law insurance regulations and self funded health plans which, under the provisions of Section of ERISA, are exempt from state insurance regulations. Stop-loss policies are instrumental in establishing a "worst-case scenario", or aggregate for any given year. Insurance companies offer similar services under what is frequently described as "administrative services only" or "ASO" contracts. In these arrangements the insurance company provides the typical third party administration services but assume no risk for claims payment. Perhaps the biggest advantage of self-funded plans is transparency of claims data. Self-funded employers who contract a TPA receive a monthly report detailing medical claims and pharmacy costs. Knowing this information becomes instrumental in controlling costs by shifting buying patterns. Other advantages include plan flexibility, access to national PPO networks, and financial savings. As health care costs continue to rise, more employers will look to alternative ways to finance their healthcare plans. Consumer driven plans have become popular recently as employers look to shift some of the accountability to employees. HSAs health savings accounts and HRA health reimbursement accounts encourage employees to shop around for the best value when considering elective medical procedures or filling pharmacy prescriptions. Self-funded plans take one step further in that they provide all claims data to employers allowing them to set up an EPO exclusive provider organization basically a PPO hand selected by the organization to eliminate high cost providers. Page 12

13 Chapter 9 : The benefits and responsibilities of being self-insured Health & Wellness Services Integrated Approach, Better Results SISCO is a third-party benefit administration firm dedicated to helping clients and their employees maximize the value of their employee benefits. Health Insurance Fully Insured Plans vs. Self Insured Plans Any good employer knows the importance of having a competitive benefits package with health insurance. However, as health insurance costs continue to rise, many businesses are rethinking their options. The two primary types of health insurance plans include fully insured plans and self insured plans. Understanding how both types of health plans work can help you make an informed decision and could even save your company money. Here is a look at how fully insured health insurance plans compare to self insured plans. Fully Insured Plans Fully insured and self insured plans are two distinct approaches to employer-sponsored group medical plans. Under a fully insured plan, an employer often feels less of the effects of rising medical costs. An employer also has the option to negotiate with health insurance providers to get the best rates possible for their employees. Fully insured plans are also convenient as claims are managed by the medical care provider and insurance provider which allow employers to focus solely on their business. This also lessens the financial strain on employees. With fully insured health insurance plans, profits made by the insurance company are retained by the organization. One of the biggest differences between fully insured plans and self insured plans is who assumes all the risk. With a fully insured plan, the risk falls on the insurance company. It is more common for larger businesses to be fully insured than businesses with thousands of employees due to cost. With fully insured plans, the company pays the insurance carrier a set premium price each year based on the number of employees who are enrolled in the plan each month. If any claims exceed the projections created at the start of the year, the insurance company assumes all legal and financial risk. As the price is fixed until the employer makes a new deal, there are no financial surprises. Pros of Fully Insured Plans: Employers face fewer cost variances month over month Businesses can negotiate for lower healthcare rates All claims are managed by the insurance provide Costs are fixed meaning the same every month The insurance company assumes all the risk Cons of Fully Insured Plans: The cost of premiums can be high Employers must negotiate with insurers each year It is not always easy for employers to communicate coverage benefits Employer tax burdens are often higher Self Insured Plans While the risk falls on the insurance company in a fully insured plan, in a self insured plan the employer or company assumes most of the risk. Businesses that have self insured plans must pay for employee medical claims and associated fees from their own general assets. In short, the business behaves as its own insurer. While there are many benefits to using self insured plans, there are also downfalls. Unexpected claims can result in climbing costs. However, if the business only has a limited amount of claims, this aspect can be advantageous. By eliminating some of the costs associated with fully insured plans, employers are able to offer employees lower premiums. Companies that have hundreds of employees are often hesitant to choose a self insured plan as this involves a lot of risk. However, smaller companies can usually afford to have a self insured plan due to the ability to purchase stop-loss insurance which places a limit to the number of claim expenses a company is liable for each year, per employee. This provides some level of protection for companies in the event that several employees require costly medical expenses in the same period. Pros of Self Insured Plans: Self insured plans allow employers to save money in the long-run Stop-loss insurance prevents companies from assuming all the financial risk With a self insured plan employers have more control over benefits Employers can remove insurer profit from their healthcare spending Companies can gain a better understanding of healthcare spend Cons of Self Insured Plans: Companies face a higher level of risk Savings are not always immediate and may take years to develop Employers are responsible for all services Companies must deal with all aspects of insurance, including denied claims Which Plan Should You Choose? No one plan is right for everyone. Both fully insured plans and self insured plans have their own set of pros and cons which make them right for some companies and a poor choice for others. However, self insured health insurance plans make sense for approximately 70 percent of companies that have a total of 25 or more employees as well as adequate cash flow. However, self insured plans also work well for some smaller businesses as well. With an appropriate Page 13

14 level of stop-loss, smaller businesses can safely take advantage of self insured plans. However, for companies who do not want the hassle of taking care of insurance issues themselves, fully insured plans may be a better option. When to Call a Health Insurance Broker Finding the right insurance plan for your business is not always easy. That is where an experienced health insurance broker comes into play. Insurance brokers can help employers compare the range of health plans available to them. As the process of sorting through health insurance plans can be daunting, having an insurance broker there to explain terms and provide advice can make the process run much more smoothly. However, not all health insurance brokers offer the same level of service. Choose an insurance broker that has a good reputation in the industry. Check licenses, references, and ask other professionals in the industry about their experience with a broker. Remember that services can vary from one broker to the next and some insurance professionals will not offer the services or attention to detail that you are looking for. You will also want to find out if you have a dedicated account manager. It is ideal to have someone that you can contact with questions or concerns instead of a stranger on the other end of the phone. For more information about fully insured plans or self insured plans, contact your local health insurance broker. Page 14