Level-Funded Health Plans Issues for NAHU Members to consider 1
Complex Decisions Understanding the differences between self-funded vs. fully-insured, and between traditional self-funded vs. level-funded Does the group understand? Do you (as their agent and adviser) understand? Agent compensation disclosure Some states require agents to disclose compensation and nearly every TPA/ASO requires the group to sign off on agent fees as a part of set-up 2
Be Prepared for Level Funded 06 01 Operational Oversight Savings vs Risk 05 02 Manage Expectations Plan Design Flexibility 04 Strategic Fit and Risk Tolerance Reporting and Data 03 3
Understanding Costs Level-Funded Plans Specific Stop Loss Premium Aggregate Stop Loss Premium Terminal Liability Rider Administration Consultant Fee Claims Traditional Self-Funded 4
What is it? Terminal Liability Terminal Liability extends the aggregate contract paid period by some period of time (typically 3-12 months) in order to allow for the run out of claims incurred during the contract period should the group choose to return to a fully insured health plan at the end of the self funded contract Typically an option for traditional self-funded plans, most level-funded plan administrators require the purchase of terminal liability for employers purchasing that option Those eligible aggregate claims incurred during the contract period and paid during the terminal liability extension will be covered under the aggregate contract. 5
Enter your sub headline here Arrow Timelines Plan Year 12 months Specific & Aggregate Stop Loss Term 6 months 12/18 Stop-Loss Contract Terminal Liability Option 9 months Info 6
Terminal Liability Terminal Liability Option causes the annual aggregate deductible to be increased by the greater of An amount equal to the employee aggregate factor times the number of employees plus the dependent aggregate factor times the number of dependent units for the last three months or minimum annual aggregate deductible divided by twelve and then multiplied by three. 7
Key Questions Employer have liability beyond fixed-amount paid? Should not have any liability beyond what they are paying Plan sponsor s liability capped and monthly costs fixed for the entire term of the stop-loss contract What should you know and compare? What are the contract terms? Is there monthly accommodation? Do the stop-loss contract and plan document mirror each other in terms of liability? How might an audit impact an aggregate accommodation? 8
Key Questions Money left in claims reserve at the end of the contract? Pay close attention to provisions in the quote: What percentage does the carrier and employer split if there are unspent reserves after runout period? What role does the employer have in agreeing with the determination? Is it based on incurred or paid claims? Common error in the market: Overpromising profit (left over reserves) after runout period. If claims reserves are less than 50% of the monthly fixed amount paid, unlikely to have anything left over at the end of the year 9
Key Questions Can we see the claims data? How is reporting done? Maintaining accountability of funds spent is a very important part of having any kind of self-funded plan Ask first! Getting access to the data regularly is incredibly important way to help your client and a critical element of level funding programs Why so important? If you don t have data, you can t Allow group to hold administrator accountable for plan performance Use the data to consider other options (return to fully-insured, more traditional selffunded model, other risk transfer strategies) 10
Key Questions What happens if we have a bad year? Depends on market size and availability if small group, no problem, but if large group, could have limited options Remember: stop-loss carriers are not subject to guaranteed renewability provisions, so the current carrier could choose to not renew Why so important? Could create a situation where there is no option to continue health plan if there is a ongoing catastrophic claim and other markets (fully-insured and self-funded) decline to quote Would leave the group and agent in a difficult position concerning requirements such as ACA Employer Mandate No laser guarantees meaningless if the alternative is a 200% increase in stop-loss premiums for the coming year 11
Compliance Issues with Level-Funded Funded Plans Issues Under ERISA, funded plans must file 5500 regardless of number of employers on health plan maintain trust (arguably being done by the claims administrator, but agent should verify) Fiduciary issues with claims administration has this been assumed by the TPA or ASO as a part of the administrative agreement for the Plan? 12
Compliance Issues with Level-Funded Claims refund handling If claims refund returned to the employer (instead of the plan): Employee contributions (as a percentage of refund) must be returned based on their individual contributions to the cost of coverage (similar to the way that MLR rebates are handled) Employer must pay taxes on the returned funds (since they took a deduction when they originally paid the funds out) If claims refund returned to the Plan, then the refund can be applied to future Plan expenses 13
Example YE (15 month) Claims Fun Reconciliation - $51,645 surplus 50% split with carrier/claims administrator resulted in $25,822 share for employer, which was written back to the employer Surplus being returned to the employer rather than the plan caused two problems: Employer portion was taken as a business expense when the money had been paid out to the carrier Since employees paid a portion of the plan s costs, the surplus must be returned in proportion to their contributions Analysis: Billing Statements for year and EE Contributions: For this plan, Employer paid for EE Only Tier and Part of other tiers EE paid pre-tax from bi-weekly paycheck withholdings: EE + Spouse $153.29 EE + Child(ren) $113.35 Family: $270.50 14
Example 23 Employees paid toward cost of coverage during plan year Two COBRA continuants for part of the year who are owed $180.02 and $72.01 with no tax issue since paid with post-tax dollars Remaining 21 owed an average of $276.76, which is taxable income SUMMARY Total payments: $400,337 EE Contributions: 98,301 (24.6%) PS Surplus Share: 25,822 (6.45%) Taxable Income to Employer 15 EE Portion of Surplus $6,341 ER Portion of Surplus $19,481
But if Surplus been paid to the Plan instead of Employer No business expense deduction issue since surplus would have not gone back to the Employer (could have been applied to future months costs No employee portion return since Plan assets Possible exception: COBRA participants 16
Compliance Issues with Level-Funded COBRA issue If employer has less than 20 COBRA FTEs, there is no COBRA continuation right and state continuation laws do not apply since there is no insurance policy Not as significant in states where there are limits on how many employees must be eligible to offer a level funded option Marketplace/Exchange Special Enrollment Period rules do not treat this type of loss-of-coverage event as one that results in a retroactive effective back to the date of loss of coverage (if policy ends on last day of employment) 17
Compliance Issues with Level-Funded ACA Reporting If employer has less than 50 FTEs, then they are responsible to provide 1095-B s to their employees who were covered during the portion of the Plan year (and send a 1094-B to the IRS) that falls within each calendar year Could be a partial year if level-funded plan was preceded or followed by a fully-insured health plan If employer has 50+ FTEs and has a level funded plan, no need for B reporting but must provide 1095-C to each eligible employee and a 1094-C transmittal to the IRS You should know in advance if the TPA/ASO will provide ACA reporting or if an outside vendor will be necessary 18
Compliance Issues with Level-Funded PCORI Fees Under federal regulations, the group is responsible for reporting and paying PCORI fees annually for self-funded health plans on IRS Form 720 Deadline to file is July 31 of each year for the plan year that ended between January 2 of the prior year and January 1 of the year for which they are filing For self-funded plans, PCORI fee amounts are based on the number of employees and dependents covered and the PCORI fee that is applicable for the termination date There are different rates for plans that end between January 2 - September 30 vs. October 1 January 1 19
Compliance Issues with Level-Funded HIPAA Privacy and Security Group must understand their unique responsibilities to preserve the privacy and security of Protected Health Information (PHI) under the HIPAA regulations Recent audits and breach notifications from employers highlight the importance of compliance, including the need to ensure that they are following the unique encryption and maintenance of data issues that surround PHI 20