Title: SelfFunding 101
1Self-Funding 101
Presented by Joe Hernandez
2A Guide to Self-Funding
- This guide to self-funding provides a
comprehensive guide to self-funding employee
benefits. It describes the differences between
insured and self-funded plans, compares the pros
and cons of each, and helps you decide if
self-funding is the right choice for financing
your organizations health care benefits. -
- A Guide to Self-Funding assumes that you will
carry stop-loss insurance, which limits the risk
your firm undertakes when choosing to self-fund.
3Stop-Loss Insurance
- Employers typically carry stop-loss insurance on
their self-funded health care benefit plans to
reduce the risk of large individual claims or
high claims for the entire plan. The employer
self-insures claims up to the stop-loss maximum
exposure, which is the dollar amount above which
claims will be paid by the stop-loss carrier.
There are basically two types of stop-loss
insurance individual/specific and aggregate. -
- Individual/Specific Stop-Loss Insurance
- Specific stop-loss protects the employer against
large, individual health care claims. -
- Aggregate Stop-Loss Insurance
- Aggregate stop-loss insurance protects the
employer against high total claims for all plan
participants.
4About Self-Funding
- What is Self-Funding?
- A self-funded, or self-insured plan, is one
in which the employer assumes partial financial
risk for providing health care benefits to its
employees. - The employer decides on a plan of employee
benefits, which can be similar to or identical
to the employers current fully insured plan, or
the employer can create whatever benefits it
desires. - The employer funds the risk up to a certain
level where a Reinsurance or - Stop-Loss Insurance carrier is brought in. The
Stop-Loss is designed to limit the employers
loss to a specified amount to ensure that large,
or unanticipated claims, do not upset the
financial integrity of a self-funded plan. The
amount of risk to be insured is a function of the
employers size, nature of its business and
tolerance for risk. - A Third Party Administrator (TPA)
administers the plan. Its responsibility
includes maintaining eligibility, customer
service, adjudicating and paying claims,
preparing claim reports, plus arranging for
managed care services such as network access and
case management.
5About Self-Funding
- Is Self-Funding Common?
-
- Most employers with more than 200 employees
self-insure some or all of their health
welfare benefits. Self-Funding for employers
with as few as 5 employees is also prevalent, but
these employers enroll workers under a
fully-insured high deductible plan unlike the
larger employers. - What benefits can I Self-Fund?
- Medical
- Dental
- Prescription Drugs
- Vision Care
- What benefits should not be Self-Funded?
- Any life insurance benefits, including ADD and
travel accident - Long-term disability LTD (unless coverage is for
a very large group)
6About Self-Funding
- Self-Funding A Comparison to Fully-Insured
Plans - Everything that is provided in a conventionally
fully-insured program is duplicated in the
partial self-funded plan. Everything that the
insurance company does when it offers a
conventionally insured program takes place in
the partially self-funded program. - The difference is that with the self-funded
plan the employer holds the cash needed to fund
benefits, and instead of paying the fully
conventional premium to the insurance company,
only a portion of the conventional premium is
paid to a reinsurance carrier. - The employer purchases re-insurance for
protection, holds the remainder of the
conventional funds (expected claim funds),
invests them, segregates them if desired, or
uses them for general business purposes until
they are needed for the funding of claims. - The employer retains and keep the funds when
claims do not materialize, hence making a
profit.
7About Self-Funding
Why do employers Self-Fund?
- There are eight primary reasons employers
self-fund benefits -
- Cash flow advantages
- Reduced insurance overhead costs (no longer pay
Insurance Company
stockholders) - Reduced state premium taxes
- Elimination of state mandated benefits
- Control and flexibility of plan design-benefits
- Control of Reserves-Return of investments on
reserves - Improved employee satisfaction
- Transparent changes at health plan renewal
8About Self-Funding
- More reasons why employers Self-Fund
- Even if an employer had good experience, the
insurance company will still pass on a renewal
rate increase based upon the insurance companys
pool of thousands of groups. You are not truly
rated based upon your claims experience and can
be treated unfairly. - With Self-Funding your renewals are based on
YOUR companys claims experience, and it is not
based on thousands of other companies that have
no relation to your company or industry. You, not
the insurance company, enjoy the advantage of
favorable claims experience. You keep the
savings. - Perceived Disadvantages of Self-Funding
- Your own poor current claims experience means
that the plan will be costly. - But less costly than an insured plan, as you are
not paying for taxes and profit in addition to
insurance coverage -
- Budgeting the Plan will be difficult.
- Prior experience guides your financial
commitment and stop loss insurance guarantees
performance -
- Termination of the Plan may be difficult.
- Stop loss coverage is structured to pick up
claims incurred in, but reported after the end of
each plan year -
- There is added fiduciary and legal
responsibility. - JHC Administrators provides advice and guidance,
when help is needed and Federal ERISA laws which
govern self-funding are less restrictive and
overbearing than state insurance regulations
9Use of Contracted PPO Networks
- One important element that a TPA will include in
its services to the employer is that of ensuring
a host of solid arrangements for the groups use
of contracted PPO networks. This is critical for
several reasons - First, any liberal use of low cost preferred
providers will allow the employer to
substantially stretch its benefit dollars.
Limited benefit dollars spent on covered services
simply go much further when the employer is not
paying billed charges but rather only
negotiated rates after discounts. - Second, because the contracted PPO network is
open, broad and widespread than all employees
and dependents will have incentives to access and
use preferred providers. Thus, not only will the
employer group save a lot of dollars up-front but
employees too will save on their out-of-pocket
co-payments, coinsurance and/or deductibles.
Contracted PPOs include
In addition to contracted PPO networks, JHC
Administrators is also affiliated with United
Resources Networks (A United HealthCare Company)
Centers of Excellence and use of acclaimed top
tier facilities with deep discounts for
transplant, cancer and newborn care. This
affiliation caps the risk for catastrophic care
and, hence, reduces the reinsurance rates.
10United Resource Networks Products
11Use of Pharmacy Benefit Management Experts
- Pharmaceutical Benefit Programs
- With rising prescription drug costs it can be
unnerving that an average employers prescription
drug plan can be the cause of almost 25 of the
cost of the companys group health plan.
Fully-Insured carriers pass along minimal
prescription drug discounts to employers and keep
any pharmaceutical rebates. The result is larger
claims experience, which then result in higher
rate increases. - Through the judicious use of Pharmaceutical
Benefit Managers (PBM), a Third Party
Administrator will enable its clients to receive
the strongest prescription drug discounts in the
country, reducing the employers prescription
drug costs, and hence resulting in lower costs
for the group health plan.
PBMs used include
12Use of Utilization Review Experts
- Utilization Review (or Utilization Management)
is a process for monitoring the judicious use and
delivery of services to control health care
costs. The objective is to deliver medical care
on a timely basis in the most appropriate setting
at the highest level of quality at the lowest
possible cost. Medical expenses are controlled
and limited by objective expert reviews which
include - Pre-certification for admission to a health care
facility using accepted standards that are
case- specific for covered benefits - Continuous analysis of the reasons for the
patient to remain in the health care facility
and at what appropriate level of care - Discharge planning of post acute care facility
and planned use of resources after a projected
date of release of the patient - Retrospective review of paid claims for
accuracy, completeness and compliance with
applicable contract terms and conditions - JHC Administrators has selected Hines
Associates for its proven expertise in fair and
effective Utilization Review. This firm is fully
accredited by URAC, one of the premier
accreditation organizations in the United States.
This respected UR firm was formed in 1987 and is
headquartered in Illinois with 25 offices
nationwide. Hines Associates is not a PPO and
does not pay claims thus eliminating any
potential conflict of interest. It acts strictly
as an unbiased third party responsible for making
medical necessity decisions. This type of
impartial expert has been proven to contain costs
without compromising quality of care for a host
of satisfied clients for nearly 20 years. - JHC Administrators is pleased to bring this
firms expertise and know-how to the table as yet
one more key component to help solve self-funded
employer issues dealing with the ever-escalating
costs of care.
13Making The Decision to Self-Fund
- How do I decide if I should self-fund some, or
all, of my employee health benefits, and what
stop-loss insurance is right for my plan? -
- Assess the volatility of claim experience for
the past three years. - Obtain stop-loss quotes at several different
levels. - Compare the costs and risks of the different
quotes against the insured premium cost. - Weigh the self-funded plan advantages of
flexibility and lower average cost versus the
increased risk and associated greater
responsibilities. - Choose the optimum solution based upon your
analysis. -
- Probably the most important step you should take
to assure that you make the best decision is to
have an experienced professional assist you. JHC
Administrators can answer your questions and
assist you with your decision to self-fund or
even partially self-fund your companys health
benefits plan. -
- JHC Administrators welcomes the opportunity to
help your organization examine its plan design(s)
and make recommendations for improvement.
14No Chance of Winning versus HOPE!
Fully Insured
Self-Funded
15Client Testimonials
So what do our clients actually say about us?
16Client Testimonials
17Client Testimonials
Carmen Camarillo, Human Resources Administrator,
City of Port Hueneme From where I sit the
employers perspective they take the weight off
my shoulders I dont have to worry or think
about it. Basically, I pass out their business
cards and ask folks to just call them directly
I dont feel that I have to follow-up with calls
I feel confident the job will get done right by
them. Our mission statement, which is to provide
excellent customer service this is our 1
priority and they provide that for us they help
us meet our mission. They really fight for you!
Whether its open enrollment or having good
market sense in negotiating a rate they know
our needs and employees and fight for the best
deal fight for the best rates they try to get
us the best deal possible. The value is not in
dollars. It is in personnel savings not having
to hire one more person. I know from personal
experience it takes more than a couple of calls
to handle an issue your company saves us from
having to do that and make all those calls that
take precious time. The bottom line is that the
information we need, whether its on insurance
rates or customer services or prior
authorizations or whatever, they always respond
in a timely manner and with great follow-up
they make it easy to continue service with them!
18Client Testimonials
That says it all we really work hard to
provide more than our valued clients expect!