Self Funding 101 Presented by Andy Willoughby Group Resources

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Self Funding 101Presented byAndy
WilloughbyGroup Resources
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What is Self-Funding?

• Self-funding is defined as when a company pays
  part of its own insurance losses and also assumes
  the role of an insurer by establishing systems to
  pay those claims.
• Basically, with self-funding a company identifies
  certain loss exposures and then makes the
  decision to become responsible for settling all
  or part of the claims arising from such risks.

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Benefits of a Self-funded Plan

• Self-funding provides the potential for savings
  if an employer has good claims experience. In
  the instances where claims are equal to or exceed
  expectations, the employers liability is capped
  under the stop-loss policy.
• The only taxable premiums are those paid for
  specific premiums, aggregate premiums and
  aggregate accommodation.
• Self-funding provides clients with the
  flexibility to design their own benefit plans and
  programs subject to Federal law, but not subject
  to state mandates.

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Cost Components ofa Self-Funded Plan

• Stop Loss Coverage (Reinsurance) approximately
  16
• Administrative Fees
• approximately 8
• Claims Costs
• approximately 76

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Stop Loss Coverage

• Specific reinsurance limits the Plans claims
  liability on any insured
• After eligible Plan charges reach the specific
  deductible (individual claims maximum per insured
  person in any plan year) the Specific Reinsurance
  will reimburse eligible Plan charges at 100 up
  to the Maximum Benefit payable while covered
  under the Plan.

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Specific Reinsurance
20,000 Specific Deductible
Upon reaching the specific stop-loss limit, the
reinsurance carrier will reimburse the Plan for
excess losses according to the stop-loss contract
Annual Total of Individuals Claims
Paid by Reinsurer (excluded from Aggregate loss
fund)
30,000
25,000
20,000
15,000
Paid by Plan
10,000
0
Individual Claims
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Stop Loss Coverage

• Aggregate reinsurance limits a clients
  cumulative liability on ALL insureds claims
  beneath the specific deductible
• The aggregate is calculated based on previous
  claims plus medical trend (these two are
  expected claims) plus a corridor
• This corridor is expressed as a percentage of
  the expected claims multiplied by a factor (for
  example, 125 or 120)
• The lower the corridor, the higher premium that
  is paid for aggregate coverage
• Aggregate liability is most often expressed in
  terms of aggregate factors the liability per
  month per employee

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Aggregate Reinsurance
480,000 Aggregate Deductible
Aggregate stop-loss insurance limits the total
maximum exposurefor medical claims and insures
losses through a reinsurer.
0
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Types of Reinsurance Contracts

• Reinsurance contracts are usually expressed as
  fractions showing incurred months over paid
  months
• 12/12 incurred in 12 months, paid in 12 months
• 12/18 incurred in 12 months, paid in 18 months
  a run-out contract
• 15/12 incurred in 15 months, paid in 12 months
  a run-in contract
• PAID/12 paid in 12 months, regardless of
  incurred date

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Optional Stop-Loss Coverages

• Monthly Aggregate Accommodation (limits client
  liability on a YTD monthly basis)
• Terminal Liability Funding (limits client
  liability on a run-out basis for 3, 6, 9 or 12
  months)
• Aggregating Specific allows the Plan to reduce
  the premium by retaining an additional layer of
  specific stop-loss claims. It is effectively a
  dollar swap of risk by the Plan for premium by
  the reinsurer

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Administrative Costs

• Include
• Claims Administration fees
• Pre-certification fees
• Network Access fees
• Broker / consultant fees
• Pharmacy Benefit Management fees

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Claims Administration

• For the administration of a self-funded plan,
  there is a need for an Administrative Services
  Agent (ASA). The three primary options for an
  ASA are
• Third Party Administrators (TPAs) are mostly
  independent entities whose primary line of
  business is the administration of employee health
  benefit plans
• Administrative Service Only providers (ASO)
  typically are subsidiaries of insurers who act as
  Administrative Service Agents
• Self-administration is generally only for the
  largest employers

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Duties of the ASA

• Include
• Preparing the Plan Document and the Summary Plan
  Descriptions (SPDs)
• Notifying other vendors involved (PBMs,
  Pre-certification, Employee Assistance Programs
  (EAPs) and submitting enrollment to them)
• Working with the prior insurance company or
  administrator to obtain eligibility, accumulators
  and claim history
• Issuance of ID Cards
• Adjudication of claims
• Filing and management of re-insurance claims for
  both specific and aggregate reinsurance coverage
• Collection of premium or fees for all of the
  fixed costs of the plan
• Payment of reinsurers, vendors and brokers
• Employer on-line capabilities

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Duties of the ASA

• May also include
• Marketing the risk for Stop Loss coverage
• Placing the re-insurance coverage
• Assuring that the terms of the re-insurance
  agreements are understood by both the client and
  the broker
• Assisting the broker and client with plan design
• Assisting with employee meetings and enrollment
• Assisting with the establishment of the trust -
  either a 501(c)9 or simple trust
• Comparison and evaluation of networks
• Mailings to employees
• Banking

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What Buyers Look for in TPAs

• Experienced adjusters
• Accurate Claims Adjudication
• Strong Regional Capabilities
• Claims Information Systems

Business Insurance - March 20, 2006
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Controlling Claims Costs

• Claim Administration
• Timely and accurate adjudication of claims
  according to the terms of the Plan
• Claim Management
• Pro-actively managing the claims cost of the
  Plan to maximize patient health and minimize Plan
  cost

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Pharmacy Benefit Management (PBM)

• PBMs provide the retail and mail-order
  prescription fulfillment for your self-funded
  Plan.
• Key things to look for in PBMs include
• a cost conscious formulary (lowest net cost)
• deep discounts off the Average Wholesale Price
  (AWP) and
• the return of drug rebates to the Plan.

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Disease Management

• Disease Management is the early intervention and
  management for patients identified with specific
  diseases.
• Typical disease states which are monitored are
• Diabetes
• Hypertension
• asthma and emphysema and
• coronary artery disease
• It generally provides disease specific brochures,
  videos CDs, comprehensive listing of websites,
  customized education and counseling and routine
  follow-up by RN Health Consultant

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Utilization/ Case Management

• Utilization Management
• Pre-Admission Certification Screens all
  elective and emergency hospitalizations using
  accepted "best practices" criteria to evaluate
  and determine the medical necessity and setting
  appropriateness for each requested procedure.
• Continued Stay Review Evaluates the medical
  need for continued hospitalization to ensure that
  the patient remains in the hospital an
  appropriate length of time. Using established
  medical criteria, the review specialist assesses
  the medical necessity based on the patient's
  condition and the treatment plan. The issues
  explored are whether a continued stay is
  necessary to achieve the desired treatment
  result, and whether there are more cost-effective
  treatment settings without sacrificing quality
  care.
• Case Management
• Manages the patient's care through assessment,
  planning, implementation, coordination,
  monitoring and evaluation of appropriate
  cost-effective treatment. Nurses provide caring,
  compassionate and directed case management of
  serious accidents and illnesses, chronic care,
  high-risk pregnancy and neonatal conditions, and
  mental health and substance abuse cases. Case
  management also provides early identification of
  short-term high-cost cases and determines the
  level of intervention to be applied

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Questions?

• Please feel free to contact me
• Andy Willoughby
• [phone]
• andy_at_groupresources.com