Partially Self-Funded Health Plans
What is self-funding? Perhaps its other name "self-insurance" is more descriptive. Instead of paying an insurance company to pay the claims (and keep any profits), a self-funded (self-insured) employer or plan puts the money into a trust fund that is regulated by the Federal government regulation, and that trust fund pays the claims and keeps any profits on behalf of the plan to offset future expenses. To avoid catastrophic losses, both commercial insurance companies as well as self-funded plans usually buy re-insurance. In self-funding, the re-insurance has the descriptive name "stop-loss". It allows a plan to set in advance the maximum loss levels it is willing to sustain on any specific situation or on the aggregate of claims on the whole group. Thus, even a one-person employer can budget to meet his pre-designated stop-loss trigger points and can self-fund successfully.
Partially Self-Funded Vs. Fully Insured Health Plans
Partially self-funded plans offer an alternative to traditional health insurance plans. It allows companies to budget for small predictable claims while protecting the group against unpredictable catastrophic claims, through the purchase of stop loss protection. A partially self-funded plan can be written for groups with as few as 25 participating employees, and usually becomes a practical option for groups with more than 100 participating employees.
Cost Comparison - Fully Insured vs. Partially Self-Funded
A fully insured or traditional product is a fixed cost and no matter how many claims you incur, or don't incur, you pay the same monthly cost. With a partially self-funded product you pay the claims as they are incurred. In the years with "average" to "below average" claims, you reap the savings.
Advantages of a Partially Self-Funded Plan
Reduced Fixed Costs
All health insurance plans have administrative costs associated with the payment of claims. A partially self-funded plan typically saves 30% on these administrative costs over a traditional health insurance plan.
Unlike traditional fully-insured plans where you pay a premium that funds claims IF and WHEN they occur, claims under a partially self-funded plan are paid only WHEN they occur. YOUR money for claims therefore, is only required when the claims are paid allowing YOU to earn interest on YOUR money instead of an insurance company.
With partially self-funding you have endless possibilities for plan design. Copays, coinsurance, deductibles covered benefits, excluded benefits can all be tailored to meet your needs. As the employer you truly have the ability to customize your employee benefits.
Claim Utilization Reports
Claim utilization reports identify claim trends specific to your group and allow you to better manage and control costs.
Reinsurance or Stop Loss Coverage
In order to protect the Employer from financial burden under a Partially Self-Funded Plan, it is recommended that Reinsurance or Stop Loss Coverage is purchased in order to limit and cap the liability that the Employer has under this arrangement.
There are two types of stop-loss coverage.
Specific. This coverage begins after an individual has claims over the specific amount during one agreement year. The plan decided what dollar amount they want for the “spec” limit.
Aggregate. This coverage begins after claims reach $Y for the entire plan year for the agreement year. The aggregate is expressed as a dollar amount and is usually set at 120-125% of Expected Claims.
The total of the Aggregate claim settlement occurs at the end of the agreement year. There is additional coverage that can be purchase so that if claims were to reach over a $Y monthly total, the Reinsurance Carrier would loan the money to the Employer Group to cover claims over that $Y amount.