CIGNA FUNDING OPTIONS How the right choice can help your clients make the most of their health plans Lauren Stoddard Cigna Self-funding Product Manager Gerard Sessa Cigna New Business Manager FOR AGENT/BROKER USE ONLY. DO NOT DISTRIBUTE.
Agenda Gerard Sessa, Cigna New Business Manager Market variables and identifying the fully-insured buyer The basics of fully-insured funding Advantages and considerations of fully-insured funding Lauren Stoddard, Cigna Self-funding Product Manager Market variables and identifying the self-funded buyer The basics of self-funding Advantages and considerations of self-funding Funding solutions comparison Stop-loss, Level Funding SM, Graded Funding SM Building a multi-year strategy 2
Identifying the buyer How does your client view their health plan? Does your client feel like they are healthier and younger than their competitors? Has your client undertaken any wellness initiatives? How does your client feel about transparency in their health care costs? Does the idea of being claims credible/ participating in the risk cause discomfort? What payment experience are they looking for consistent monthly payments vs. variable? Is there a particular need for each state mandated benefit? 3
A fully insured buyer typically : Is a best on spreadsheet buyer looking for lowest cost. Likes being able to budget to a monthly health care cost. Has less tolerance for perceived risk. Has less interest in taking a role in wellness or utilization management initiatives. It s the employer s role to provide coverage and access to market competitive health insurance. Doesn t know whether or not they need state mandates but has to have them. Comfortable in a low-claim-credibility or community rated environment. Not much thought is given to how their population is running until renewal time. 4
Fully insured funding THE BASICS Full insurance protection Predictable, fixed monthly premium for all costs Insurance carrier pays covered claims Also known as traditional funding or Guaranteed Cost (GC) Subject to the state and federal benefit mandates: Taxes and other fees FULLY INSURED Underlying contract/plan Monthly payment Maximum cost the client pays Benefit from lower claims Benefit mandates Taxes and fees Run-out claims responsibility Access to plan/utilization data Fully insured Fixed premium 100% of expected cost None State and federal State premium tax, health industry fee, PCORI/CERF and reinsurance assessment Carrier pays claims incurred during policy year but processed after termination None 5
Advantages and considerations of fully insured ADVANTAGES Maximum protection Simple monthly payment No extra costs at termination/ no surprises Carrier is responsible for administration and claim payment DISADVANTAGES Less plan flexibility Higher expected costs/taxes Minimal insight into claim experience Less alignment with health and wellness strategy 6
A self-funded buyer typically: Thinks of the health plan as a long-term investment. Believes that their population is healthier and younger than the rest of the insurance pool. Wants to participate in their own claims. Realizes that self-funding with Cigna is the same financial risk as fully insured. Wants transparency regarding health plan expenditures. Wants to begin or is already deeply involved with wellness and utilization management initiatives. Understands that plan designs can drive behavior and needs the plan design flexibility a self-funded plan can offer. As a provider of health coverage, it s the employer s responsibility to influence personal behaviors to affect health outcomes. 7
Self-funding THE BASICS Client pays fee to administrator who administers the plan Self-funding does not provide insurance protection Reduces fixed costs Clients pays all covered claims and hold reserves Also known as administrative services only (ASO) ADDITIONAL PROTECTION AVAILABLE Individual and aggregate stop-loss products protect cash flow SELF-FUNDED WITH STOP-LOSS Underlying contract/plan Monthly payment Administrative services only Fixed and variable Stop-loss premium, administrative costs and claims Maximum cost the client pays Expected costs + a claims corridor (typically 10-25%) Benefit from lower claims Benefit mandates Taxes and fees Run-out claims responsibility Access to plan/utilization data Savings returned in real time Some federal State premium tax applies to stop-loss premium, CERF/PCORI and reinsurance assessment Carrier pays claims incurred during policy year but processed after termination At least a yearly report showing plan costs and utilization at a detailed level 8
Advantages of self-funding PLAN DESIGN DATA TAXES FINANCIAL PARTICIPATION Exempt from most state-mandated benefits Can offer same plan to employees in all states Detailed utilization and financial reports Informs benefit decisions and employee education initiatives based on client-specific needs State premium tax only applies to stop loss products Some health care reform fees under the Patient Protection and Affordable Care Act (PPACA) apply; some do not Client saves money when actual claims are lower than expected Aligns health and wellness objectives and benefit strategy with financial benefits 9
Considerations of self-funding Client assumes administrative role in: Banking Privacy/Health Insurance Portability and Accountability Act (HIPAA) PPACA filings Client pays more when actual claims are higher than expected higher maximum cost (can be mitigated with stop-loss products. Claim costs vary (higher or lower) each month. Additional payments due after termination. Client is responsible for run-out claims. 10
Funding solutions comparison FULLY INSURED: 100% MAXIMUM LIABILITY Fixed costs Reserves Paid claims Full premium paid to carrier client does not share While some of the costs are similar, the 25% corridor adds a large sum to total expected cost. SELF-FUNDED WITH STOP-LOSS: 125% MAXIMUM LIABILITY Fixed costs Reserves Paid claims 25% aggregate corridor Paid to carrier Held/funded by client This comparison is intended to demonstrate key concepts across the funding continuum and is not intended to reflect technical pricing differences. 11
Stop-loss Throughout the year, a plan can experience claim fluctuation due to unexpected catastrophic claims related to serious illnesses or accidents; additionally, a shift in overall utilization can impact cash flow. Eleven of the twelve drugs approved for fighting cancer in 2012 were priced over $100,000 per year.* Employers gain peace of mind knowing maximum liability. Stop-loss limits impact of unexpected fluctuations in claims. Stop-loss premium adjusts based upon the level of protection client chooses. Cigna offers a fully aligned stop-loss policy that allows for prompt reimbursement so claim payment is quicker and there are no separate fees or inconsistent policy interpretations. INDIVIDUAL STOP-LOSS Limits liability to a predetermined amount for each covered individual on the plan, per policy year. Cigna offers individual dollar limits that range between $10K and $75K. AGGREGATE STOP-LOSS Limits the total claim liability for the plan year. Cigna offers aggregate levels typically set at 20% or 25% higher than expected claims. *Blood Magazine, Journal of American Society of Hematology, April 25, 2013. 12
Self-funding and termination costs Two ways that self-funded products can handle termination costs and claims incurred during the policy year and paid after termination: Client pays carrier for cost to process claims paid after termination for a period of months (3, 12, 15, 18 months are most common). Client also pays actual claims. Client s monthly payment during the active policy year pre-funds the termination administration costs and the claims. As an employer moves between carriers, they must consider their terminal liability costs for the old policy year plus the costs for the new policy year. 13
Self-funding products that have fully insured features Increase in last three years of products that combine the flexibility and opportunity to save with the consistent monthly payments with a cap costs. Consider Cigna Level Funding : Client pays monthly fixed payments based on maximum costs and never pays more unless enrollment changes. Terminal fixed and claims costs are included with the payment no costs at termination. ISL and ASL provide protection for higher than expected claims. 14
Cigna Level Funding basics Self-funded contract BASICS Integrated ISL and ASL with medical plan Prompt reimbursement on stop-loss Client pays a predictable, fixed monthly stop-loss premium and claims funding amount Claims funding includes terminal liability Client-specific reporting/transparency Typically 110-120% attachment ADVANTAGES Participate, or share, in claim experience. Employers can receive either ½, 2/3rds or 100% of the savings if actual claims are less than expected No deficits carried forward Reserves Premium tax savings Cigna pays run-outs after termination; the client is not liable for any additional costs after termination State benefit mandates do not apply Health insurance industry fee does not apply $35 30 25 20 15 10 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec THINGS TO KNOW Bank account setup Client must renew and stay through 16th month to receive surplus Surplus amount adjusted for terminal fund Reporting for employer mandate Terminal fund Monthly claims funding Administrative and stop-loss premium (fixed costs) Month 16 run-out 15
Level Funding five things to remember 1 2 3 4 5 Know what you owe consistent monthly payment that includes terminal coverage for 15 months Opportunity to share in savings if claims run well, and you don t pay more if claims run worse than expected Premium tax and health industry fee savings No deficits that carry forward from year to year Experience self-funded sales and underwriting experts since 2008 16
Graded Funding pay as you go and pay for what you use BASICS Self -funded contract Immediate reimbursement on stop-loss Fixed monthly premium and variable claims funding amount Client pays lesser graded amount of fixed costs in months one and two Client pays for actual claims Client-specific reporting/transparency Run-out period of 15 months Maximum cost ADVANTAGES Client holds savings throughout year Improved cash flow in months one and two State benefit mandates do not apply HIF/PPACA fee does not apply Alternative to 100% surplus return products Expected cost First year Reserves Fixed cost 25% 25% 50% 50% 125% 125% Protection for 15 months after termination (if client were to leave) Jan Feb Effective date Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Termination date This example is provided for illustrative purposes only. Actual components will vary. 1-Premium is Experience Rated Premium excludes Access fees and Pooling. THINGS TO KNOW Client takes on ERISA administration tasks Bank account setup Monthly accommodation deficits from previous months can be carried forward Credit risk deposit (varies based on funding frequency) Client must fund run -outs (fixed and claims) 17
Graded Funding five things to remember 1 2 3 4 5 Pay as you go pay for actual claims each month and keep any savings Lower costs the first two months Premium tax and health industry fee savings Access to data to help drive meaningful plan design changes Experience 25 years of self-funding options for smaller employers 18
Cigna s multiyear strategy is built to grow with your business Fully insured Cigna Level Funding Cigna Graded Funding Fixed premiums Easy administration and budgets Automatic compliance with state mandates No chance to save when claims are lower Little to no transparency into claim utilization Limited opportunity to benefit from health improvement initiatives Renewal experience is based on community rating standards Fixed monthly costs Savings when claims are lower than expected (partial) Full transparency into claim utilization Health improvement strategy resources and the opportunity to see any financial benefit from these initiatives Ability to retain plan flexibility Subject to lower premium taxes than fully insured Fluctuating monthly costs with capped claim liability Savings when claims are lower than expected Full transparency into claim utilization Dedicated health improvement strategy resources that help to see year-over-year benefit of employee health programs Ability to retain plan flexibility Subject to lower premium taxes than fully insured 19
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