New Funding Models Self-Funding for All Sized Groups

Transcription

1 New Funding Models Self-Funding for All Sized Groups Idaho Association of Health Underwriters January 2013 Presented by: David J. Flores Vice President, Sales Trustmark Companies

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3 Today s Objective Educate Comfort level Small Group 3

4 What will be Addressed 1. Introduction to Self-Funding 2. Stop-Loss Insurance 3. Important Terminology 4

5 Introduction to Self-Funding

6 Definition: Self-Funded Plan Employer assumes the financial risk for providing health care benefits to its employees.* Employers with self-funded plans purchase stop-loss insurance to protect themselves from catastrophic and unpredictable losses. * Source: Self Insurance Association of America (SIAA), Q&A 6

7 Administration: Self-Funded Plan Third-party administrator (TPA) Insurance carrier 7

8 Self-Funded Coverages Low Loss / High Frequency Medical Dental Rx Vision Life High Loss / Low Frequency AD&D Long Term Disability 8

9 Many Names Self-funded health plan Self-insured health plan Administrative Services Only (ASO) plan Service Contract Self-funded health plan with stop-loss insurance 9

10 A Bit of History Pre-1974 Self-funded health plans were obstructed by restrictive state laws that required employers to be licensed as insurers when they funded their employee benefit plans* 1974 Passage of the Employee Retirement Income Security Act (ERISA) removed those barriers to a great extent * Source: Stop Loss 101, Duncanson & Holt,

11 ERISA Preemption Section 514 of ERISA - Preempts all state laws that relate to any employee benefit plan, with certain exceptions. Preemption refers to the invalidation of state law when it conflicts with federal law. There is a state insurance law exception within ERISA, but that is limited by the deemer clause. The deemer clause essentially provides that state insurance law cannot operate on employer self-funded benefit plans. 11

12 Advantages of Self-Funding Greater control over plan design - reporting Cash flow benefits Reduced premium taxes State mandated benefits may be avoided Reduced risk charge Savings from unused plan costs retained by employer 12

13 Risks & Responsibilities Fiduciary Responsibility: Employer assumes financial risk and legal liability associated with the health plan Risk Assumption: Employer assumes the risk of all claims underneath the specific and aggregate stop loss coverage levels Provision of Services: Employer must provide services carriers normally provide, typically by contracting with a third party administrator (TPA). 13

14 Risks & Responsibilities Run-out Claims: All claims that are received by the TPA or carrier after the run-out period is up are the responsibility of the Employer. Trade-off : Security of Defined Costs Self-funded plan costs may exceed the guaranteed cost of a fully insured plan. 14

15 Compliance and Governance Applicable laws for self-funded group health plans: ERISA, HIPAA, COBRA, ADA, PPACA Several provisions of PPACA do not apply to selffunded plans: Essential Benefits requirements Minimum Loss Ratio (MLR) requirements HHS calculated carrier tax starting in

16 Contractual Documents Administrative Services Agreement: Establishes the duties and responsibilities of both the employer and the administrator The administrator can be a TPA or carrier Addresses the funding of claims, claim run-out administration, reporting, service fees associated with all aspects of plan administration Stop-Loss Insurance Contract: The insurance contract addressing the specific and aggregate stop-loss insurance 16

17 Contractual Documents Plan Document: Contains all the provisions and rules of the plan Provides administrative guidance to the TPA/carrier Looks very much like a fully insured certificate. Includes the Schedule of Benefits, covered charges, exclusions, eligibility and termination conditions, coordination of benefits, continuation of coverage, etc. 17

18 Financial Components of Self-Funding Stop-Loss Insurance Premium Plan Administration Expenses Expected Claim Costs 18

19 Stop-Loss Insurance

20 Stop-Loss Insurance Reimburses the employer for claims above a specified dollar level Insurance contract between the employer and the stop-loss insurance carrier Not deemed to be a health insurance policy covering individual plan participants 20

21 Specific Stop-Loss Insurance Specific Stop Loss or Individual Stop Loss Insures the employer against a catastrophic loss incurred by one individual over a certain dollar amount (called the specific deductible). Premature births, transplants, etc. Claims above the specific deductible are paid by the stoploss carrier Specific deductibles can be low ($6,500) for small employers, or high for large employer ($250,000+). Can be purchased without Aggregate Stop-Loss Insurance 21

22 Specific Stop-Loss Example: $50,000 Claim on one individual Next $25,000 Next $25,000 of the claim is funded by the stop- loss carrier $50,000 Claim First $25,000 First $25,000 of the claim is funded by the employer 22

23 Specific Stop-Loss Levels Number of Covered Employees Maximum per Employee Number of Covered Employees Maximum per Employee 5-9 $6,500-$10, $40,000-$45, $10,000-$15, $45,000-$50, $15,000-$20, $50,000 - $75, $20,000-$25, $60,000 - $125, $25,000-$30, $100,000 - $200, $30,000-$35, ,000 $150,000 - $250, $35,000-$40, $200,000 - $500,000 * Source: Self-funding Advance Concepts, Dean M. Hoffman LLC 23

24 Aggregate Stop-Loss Insurance Caps aggregate claim liability for the entire group Insures the employer against unusually high overall claim levels due to high utilization Only claims up to the specific deductible for each covered individual accumulate toward the aggregate attachment point (or aggregate deductible) 24

25 Aggregate Stop-Loss Insurance Claims exceeding the aggregate attachment point are reimbursed by the stop-loss carrier The aggregate attachment point is typically expressed as a percentage of expected claims cost. Example: 110% or 125% The difference between expected claims and the aggregate attachment point is called the corridor. This is the risk the employer is accepting with their selffunded plan 25

26 Aggregate Stop-Loss Example: $100,000 Expected Claims Cost 25% Corridor Employer Liability = $125,000 (Aggregate Attachment Point) 125% of expected claims $135,000 actual claims for the year $10,000 reimbursed by the stop-loss carrier $25,000 Aggregate Corridor $100,000 Expected Claims $10,000 Stop-Loss Carrier Liability $125,000 Employer Liability $135,000 in Total Claims 26

27 Contract Basis Incurred Paid Label Description 12 months 12 months 12/12 Claims incurred and paid in the same year. 12 months 15 months 12/15 Allows for 3 months of run-out claims protection 15 months 12 months 15/12 Allows for 3 months of run-in claims protection 27

28 Important Terms

29 Paid Contract Eligible claims can be incurred prior to the contract period, but must be paid during the contract period Incurred in 15 months and paid in 12 months (15/12) 29

30 Incurred Contract Eligible claims can incurred during the contract period and paid during and up to 3 months (or more) after the end of the contract period Incurred in 12 months and paid in 15 months (12/15) or 12/18, 12/27, etc. 30

31 Run-in The period of time immediately preceding the beginning of a new stop-loss insurance contract period in which the administrator (or carrier) agrees to process claims from the prior plan incurred prior to, but not received during the contract period. Typically a 3-month period. The group must be coming off a self-funded plan without terminal protection during the run-out period. 31

32 Run-out The period of time immediately following the end of the stop-loss insurance contract period in which the administrator (or carrier) continues to process claims incurred, but not received, during the contract period. 32

33 Lasering Refers to removing (carving out) specific risks (a person or a person s condition) from stop loss coverage, or assigning a higher specific stop-loss level on that risk. Increases the employer s liability 33

34 Monthly Aggregate Accommodation Refers to funds advanced by the TPA or carrier to the employer to cover claims in a given month when claims paid are greater than the available unused aggregate claim liability. The accommodation is the amount in which the year-todate paid claims exceed the year-to-date aggregate attachment point. More common in the small group market (less than 100 lives). For off-anniversary terminations, any outstanding advance is immediately due to the TPA/carrier. 34

35 Specific Advance Funding Specific Advance funding on specific stop-loss claims provides cash flow assistance for employers. It s when the TPA or stop-loss carrier advances the employer funds to cover claims in excess of the specific deductible. Large group employers fund claims in excess of the specific deductible then seek reimbursement from the stoploss carrier. 35

36 Terminal liability Terminal Liability Option or Terminal Protection Funds claims paid in the run-out period when termination occurs on-anniversary. 36

37 Pre-funding Makes small group self-funding administratively easy Employer funds entire monthly aggregate claim liability, along with stop loss premium, and administrative costs After conclusion of contract period any unused, pre-funded claims are returned to the employer 37

38 Self-Funded Plans Thank you for your time! David Flores Vice President, Sales Trustmark Companies 400 Field Drive Lake Forest, Illinois 38

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