Executive Review: Self-Funded vs. Fully Insured Health Plans in the PPACA era. Presented by Ryan Jackson Sara Hames, CEBS

Transcription

1 Executive Review: Self-Funded vs. Fully Insured Health Plans in the PPACA era Presented by Ryan Jackson Sara Hames, CEBS

2 Dave Hazen, CFO - Racine Unified School District Julie Kelly, Director of Business Services Muskego-Norway School District (formerly with St. Francis School District) Sara Hames, CEBS Consultant, Hays Companies Ryan Jackson Director, Hays Companies

3 Introduction Fully Insured versus Self Funded Self-Funded Basics Stop Loss Claims Reports Cash Flow Reserves, Surpluses, Deficits Data Sample Analysis/Projection PPACA s influence

4 55% of all employees covered through their employer are in self funded plans Overall trend by small and midsize employers - under 200 EE's - to self fund (UBA Advisors) UBA Employer Opinion Survey (2-200 EE's) 17.5% currently self fund 12% are likely to implement Current self funded by industry Government/Education/Utilities: 20.7% Wholesale/Retail: 11.6% Manufacturing: 11.3% Finance/Insurance/Real Estate: 9.2% Health Care/Social Assistance: 8.7% Kaiser Family Foundation (2-199 EE's) 16% of companies self fund in was 12% in 2008.

5 Fully Insured Plan: An insurance arrangement in which the employer contracts with a health plan that assumes financial responsibility for the costs of enrollees medical claims and administration. Self-Funded Plan: An arrangement in which the employer assumes direct financial responsibility for the costs of enrollees medical claims. Employers sponsoring self-funded plans typically contract with a third-party administrator or insurer to provide administrative services for the selffunded plan. In most cases, the employer may buy stop-loss coverage from an insurer to protect the employer against very large claims.

6 Transference of Risk Stop loss is a form of reinsurance that employers buy to limit their losses when self-funding their health care plan. Aggregate: Insures against total claims exceeding an estimated dollar amount plus a margin during a plan year. It can include a monthly accommodation Specific: Insures against a single high cost claimant that exceeds a dollar limit, i.e. $40,000 for a plan year Laser: A risk sharing contract feature on individual stop loss contracts. The employer shares in additional risk for an ongoing, high cost claim. For example: Specific stop loss is $50,000 One ongoing high cost claim within group. Stop loss carrier sets the laser at $250,000 Employer has an additional risk of $200,000 (or total risk of $250,000) for the ongoing, high cost person Terminal Liability: Provides 3 to 6 months of run-out protection when stop loss policy terminates Contract Liability: Defines what incurred and paid dates are covered under the policy: 12/12, 15/12, 24/12, 12/15, 12/18, etc. 6

7 Subject to state mandates? Fully Insured Yes Self-Funded Generally No IBNR Held by carrier Held by District Participation in current year experience? Bundled or Unbundled Components Margin and premium taxes? No unless a retro or performance reward is offered Bundled Only Yes; it s built into the premium Yes Can be either Margin is optional Taxes are eliminated Plan Design Flexibility Limited by Carrier Flexible and customizable Budget? Set by Carrier Set by District but can vary from month to month

8 Advantages Disadvantages Level premium regardless of poor claims experience for that year Easy to switch carriers as reserves are included in the premium paid Easy to budget on an annual basis Administration usually more simplified (depending on number of locations) Level premium regardless of good claims experience for that year Subject to state mandates which may make plan more expensive Multi-state employers have different plan designs by state Bundled and thus unable to interchange broken parts (administration, network, etc.) Must pay premium, taxes, and margin on top of administrative and claim expenses Less plan design flexibility Limited data available 8

9 Advantages Disadvantages Generally lower cost of operation Able to unbundle and seek least expensive/best service for each component Uniform plan designs nationally Better cash flow as hold own reserves No margin or premium taxes Able to take advantage of good experience within plan year Claims may exceed expected level in a poor experience period and may exceed budget if budgeted at expected level. Costs may vary widely from month to month Employer may ultimately be the final say for claims appeals, putting the plan administrator in a sometimes uncomfortable position More plan design flexibility Employer can choose how much risk they can tolerate 9

10 258 Employees, $1500 Deductible, Insured Premium of $12,473 PEPY 2009 Changed to Self-Funded, $750 Deductible 1 st year cost = $7,736 2 nd year cost = $8,091 3 rd year cost = $9,099 4 th year projected cost = $9,863

11 ABC School District Self Funded Analysis Specific Level: $50,000 7/2010-6/2011 7/2011-6/2012 Average enrollment Incurred Claims $6,095,314 $6,327,815 Less Excess Claims over $50,000 $925,879 $796,604 Adjusted Incurred Claims $5,169,435 $5,531,211 Estimated Administration Fee $173,880 $178,194 Estimated Stop Loss $50,000* $621,000 $745,201 Estimated Aggregate Stop Loss $24,840 $26,278 Total Self Funded Plan Cost $5,989,155 $6,480,884 Fully Insured Premium paid $6,215,978 $6,837,576 Estimated Savings - Self Funding $226,823 $356,692 Savings % 3.6% 5.2% * Stop loss premium excludes Medicare retirees. 11

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13 Access to more robust utilization data Wellness programs can help to reduce rates/costs directly and immediately Offer the same uniform health plan in multiple states Not required to offer tailored benefits to each state dependent upon the existing state mandates Flexibility in coverage denials Self funded plans determine their own plan designs (must follow certain federal guidelines) Avoid or reduce premium taxes. Administration fees are approximately 6-15% of total premium: retention is significantly reduced Many TPAs/stop loss carriers have stared targeting small-midsized employers with products for as few as 25 employees

14 A robust data tool can answer many critical questions, including: How much are we paying for health care? How much are other companies paying? Which areas within our plan are most costly? How efficient is our plan design? How much does chronic disease cost? Are members getting their recommended preventive care

15 It should have the ability to, Drill-down into specific areas uncovering hidden problems and opportunities Predict the impact of changes in plan design & value

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17 Prohibit Discrimination in favor of highly compensated Requires reporting of medical loss ratio (MLR) and provision of rebates Annual Rate Review Impose community rating rules Requires coverage for Essential Benefits Self-Insured Plans Are Not Subject to the Jurisdiction of State Ombudsmen48 PPACA provides for the creation of a state-level office for an Ombudsman.

18 Fully insured plans below 50* lives must community rate o No health underwriting adjustments o Disadvantage to healthy groups Rates may only vary based on the following: o Age no more than 3 to 1 ratio o Tobacco use - no more than 1.5 to 1 ratio o Self or family coverage o Region Deductibles may not exceed $2000 Single/$4000 Family *State may re-define this

19 Avoid one of the largest Taxes/Assessments: Health Insurance Tax (HIT): Approx % of Premium $30,000 to $69,000 on $3,000,000 in annual premium Retain ability to keep high deductibles Avoid the estimated loads of 15% to 50% from insurers for taxes and new product designs

20 Ensure stop loss and TPA s are the best fit for the District Provide Actuarial and Underwriting services Select best provider network(s): access and discounts Detailed Claims Reporting Demographic analysis Member illness burden analysis Preventive care compliance Identify greatest risks Customized wellness programs Targeted member communication

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