Self Funding 101

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Self Funding 101

• Brown Brown Insurance

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Table of Contents

• Self Funding Strategy
• Stop Loss Components
• Third Party Administration
• HCR Impact on Self-Funding
• Questions

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Self-Funded Strategy
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Why Self Fund?

• Employer Concerns
• Health Care Issues
• Control Costs Associated with Illness and Injury
• Address Costs of Lost Productivity
• Declining Population Health from Lifestyle Issues
  (obesity, tobacco, alcohol, etc.)
• Reduce Absenteeism
• Increase Consumer Knowledge
• Benefit Design to Support Wellness Initiative
• Member Responsibility
• Commitment to Addressing Health Care Disparities
• Planning for the future of Health Care - HCR

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Carrier Model

• Model based on leveraging a large enrollee base
  to negotiate lower fee schedules with providers
• Conduct pre-certification and utilization review
  of referrals and procedures
• Places the industry's problems on physicians and
  hospitals, blaming them for charging too much
• Addresses problems after high dollar expenditures
  have occurred

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Managing Healthcare Cost

• Acute
• Less than 30 of members with Inpatient and
  Emergency visits this year repeat those visits
  next year.
• Chronic
• For 70 of members, their chronic cost changes
  by less than 500 from this year to next year.
  What type of management will reduce those costs?
  Which members are most impactable?

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Opportunities to Improve Health

• Reduce Health Risks
• Preventive Focus
• Control Health Costs
• Promote Member Responsibility

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The NEW Model
Now We Can Manage and Integrate Each Component
Accurate identification of high risk members
where there is the greatest opportunity to impact
costs and quality of care.
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Health and Wellness Goals

• Identify people at risk
• Medical and Rx Claims
• Lab Results
• HRA / Wellness Screenings
• Promote behavioral change and enroll in Health
  and Wellness Programs
• Prevent disease
• Slow progression
• Avoid acute events
• Requires more time to slow disease progression
  than to prevent acute events
• This is a multi-year journey

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Stop Loss Components

• Specific Reinsurance
• Aggregate Reinsurance
• Third Party Administrators

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Main Objective of Self Funding

• Control of premium dollars and cash flow benefits
• Return on investment for reserves
• Flexibility of benefit plan designs
• Elimination of premium tax immediate savings!
• Access to detailed claims data and accountability
• Mandatory state benefits can be avoided
• Excessive profit margins, risk charges, and
  non-disclosed operating costs can be eliminated
• Stop Loss Insurance provides effective risk
  management

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Stop Loss Protection

• Specific Reinsurance - (ISL)
• This coverage protects the plan against
  catastrophic claims by single individuals that
  exceed a deductible
• Dollar limit is chosen by Pure Wafer
• For example if a covered participant has claims
  exceeding the plans designated specific
  deductible, the ISL coverage would then reimburse
  the employer for all the covered expenses beyond
  that dollar limit.
• Aggregate Reinsurance (ASL)
• This coverage provides protection for the plan
  against unexpected large claims in total.
• Employer indicated the maximum amount they would
  pay during the contract period.
• This is usually 125 of the level of expected
  claims which is established by the underwriters
  and carriers

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Combining Specific Aggregate Stop Loss

• Specific and Aggregate protection is purchased
  together.
• As the plan matures the claims experience becomes
  more predictable.
• Plan designs can be modified annually to insure
  efficient use of premium dollars and maximize
  benefits for all plan participants.
• Employer can review reinsurance coverage on an
  annual basis to insure competitive pricing.

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Types of Stop Loss Contracts

• Incurred and Paid (12/12)
• Covers medical claims which are both incurred
  and paid during the same 12-month policy year.
• Incurred and Paid with Run-Out (12/15)
• Covers medical claims during the 12-month policy
  year and paid up to three months after the end of
  the policy year.
• Incurred and Paid with Run-In (15/12)
• Covers eligible medical claims which are
  incurred during a 3-month run-in period to the
  effective date of the policy.
• Paid Contract
• Covers claims which are paid during the 12-month
  policy year, regardless of when the claim was
  incurred.

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Third Party Administration

• TPA Duties
• Network Management

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Third Party Administration

• Generate Plan Documents
• Reporting
• Claims processing and management
• Legal and ERISA compliance
• Utilization review and large case management
• Cobra Administration
• Plan performance
• Network relationships

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Network

• Freedom to chose between National PPO Networks
• PPO Networks negotiate volume discounts on behalf
  of their customers
• Regional Networks can be utilized for maximum
  effectiveness and efficiency.
• Employer can offer a variety of plan designs
• Traditional PPO
• Multiple plans (Base / Buy-Up plan)
• In Network Only
• Health Saving Accounts (HSA)
• Health Reimbursement Accounts (HRA)

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HCR Provisions Impacting Self-Funded Plans
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Provisions Effective Sept. 23, 2010

• These apply to self-funded plans, regardless of
  grandfathered status
• No lifetime limits and only restricted annual
  limits on essential benefits
• Annual limits on essential benefits must be at
  least 750,000
• Essential benefits only defined through broad
  categories no detail guidance
• No rescissionsexcept fraud/intentional
  misrepresentation
• Inadvertent misrepresentation of facts not enough
  to justify rescission
• Termination for failure to pay plan contributions
  is allowed

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Provisions Effective Sept. 23, 2010

• These apply to self-funded plans, regardless of
  grandfathered status (cont.)
• Coverage for adult children up to age 26
• Grandfathered plans may exclude adult children if
  they have access to another employer-sponsored
  plan. Ends for plan years beginning on or after
  1/1/14
• Adult children must be offered coverage even if
  married and without regard to financial
  dependency or residency
• No pre-existing condition exclusion for employees
  or dependents under 19 years old
• No pre-existing condition exclusion allowed for
  any ages starting in 2014

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Provisions Effective Sept. 23, 2010

• These apply only to self-funded plans that are
  not grandfathered
• Emergency Services
• Plan must pay out-of-network true emergencies at
  in-network cost-share with regard to co-pay and
  coinsurance
• No pre-authorization requirements for emergency
  use
• Primary care providers (PCPs)
• If plan allows or requires PCP, it must generally
  allow members to choose a PCP, including any
  available participating pediatrician
• No prior authorization or referral for female
  members to access a participating OB-GYN are
  required

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Changes Grandfathered Plans CAN Make

• Permissible changes (no loss in GF status)
• Changes in the dollar value of a policy or plan's
  premium
• Changes required to comply with Federal or state
  law
• Including compliance with provisions of PPACA or
  to increase benefits
• Changes to a third party administrator
• Changes that may be permissible
• Changes to plan structure
• Exampleswitching from an HRA to major medical
  coverage or from an insured product to
  self-funded
• Changes to a provider network
• Changes to a prescription drug formulary
• Changes to accommodate mergers and acquisitions
  (subject to specific anti-abuse rule)
• Any new standards published in final regulations
  that are more restrictive than those in Interim
  Final Rule would only apply prospectively

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Questions