We are considering our health insurance options, with self-insurance being one of them. What experiences have you had with self-insured health care plans, and what are some of the pros and cons? What are the pitfalls to be wary of? Benefits?
Self-insured health insurance
Answers
We joined a Captive at the beginning of the year, so you are layering your
Audry,
Try searching Self Funded on this site. There are I believe two other posts on this same subject with a lot of great responses. This seems to be on everyone's minds at the moment. ;)
Self-insurance (or partial self-funded) can be a very good plan for the right group. I don't believe that you are looking at a true "self-insurance plan" without any stop-loss protection. If you are not getting stop-loss coverage, I hope you have extremely deep pockets.
The major concerns you should have is your potential liability, additional responsibilities, and hidden costs. Too many employers underfund the expected claims liability. In the first few months you should see significant savings but remember that is takes most medical providers 2 months or more to get you claims. Because of that the employer may think to themselves "WOW, why didn't I do this before?", and then may reduce the funding for claims. Then a large medical expense occurs, and the employer struggles to make up for the claims funding that they should have been doing. If you are a very large group with consistent claims each month, self-insurance can be effective. If your group has fewer than 100 employees you may want to consider a level premium, capped claim plan at first to get familiar with the concept. These look like a traditional fully insured insurance plan but the underlying funding is self-insurance. You pay a monthly amount , "premium", that is split between insurance stop-loss premium and claims funding. The insurance company processes everything usually just like a fully insured plan. If at the end of the plan year you have a positive balance in the claims funding account, you should receive a refund. Some insurance companies provide a 100% refund of the balance other insurance companies only a portion of the balance, so be aware of what you are looking at. If you exceed the expected claims you are not responsible. You don't save any cash flow at first but it takes much of the liability out.
One caution, if the proposal shows something like "funded at 60% of expected claims" question the validity of the proposal. Anything less than 100% funding the first year could put you in an increased liability. I have seen several times that happen and the employer struggles to find money for claims. Unfortunately, the employer has a distrust of self-insured plans when the distrust should be with the person selling the plan.
To continue the liability issue, there is a term called lasering. Lasering refers to taking particular employees that have certain medical conditions and increasing the stop-loss deductible on that particular person, or even disqualifying that person from the stop-loss coverage. Any claims would then be the responsibility of --- THE EMPLOYER! Use extreme caution if the policy has a lasering clause. This can happen even after the initial policy is issued. Perhaps a new employee (or family member) comes on the plan with a medical condition that the insurance company doesn't want anything to do with.
Be aware of any additional responsibilities that you may have with a self-insurance plan. Most TPA's will tell you that they take care of everything, but find out what that "everything" means. What about the cost of special reports? Get it in writing, as well as what additional responsibilities you will have. Factor that into your cost of the plan. Large groups can end up hiring additional staff and smaller groups put the burden on existing staff. It may be to review/approve claims of a certain size, or even all claims. Do you have anyone in your company that can take that task on? The point is what will your involvement be?
Self-insurance plans are responsible to pay the new ACA taxes and fees and fully insured plans have it built in. Most TPA's that administer self-insurance plans don't collect the ACA taxes and fees. Also self-insured plans may not be subject to the new ACA. So they can be underwritten, which could affect rates. They may not provide the same level of benefits such as in the area of wellness.
With all of that said, self-insurance can be very effective. Most employers should at least review what their options are. Get proposals from different insurance companies and compare the benefits to fully insured. And make sure that you are using a good agent/broker that has experience with these types of plans.
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Brian, overall some excellent points and thank you for sharing your experiences. I will also take issue with a couple of items. The only ACA related taxes and fees that apply to self funded plans is the transitional re-insurance fee which amounts to roughly $50 per covered life or $120 per employee for 2014-2016 and the PCORI fee which is about $1 per employee per year. None of the other taxes and fees apply to self-funded or partially self-funded plans. A self funded plan will save on taxes and fees alone an estimated $530 per employee per year. Any administrator worth their salt will collect and pay that fee (as well as the PCORI fee,) as part of the plan administration.
Secondly, anyone that under funds their plan is asking for trouble. Our advice to clients is to max fund their plan which takes them right up to the attachment point on their stop loss coverage, depending on the state and the reinsurance policy but generally at 120% of anticipated claims. This guarantees no surprise cash calls. Not all fund at that rate but we will not take on a client that won't fund at least 100% in their first year. Even with funding at 120% level, their plan contributions will be less than fully insured plans. This funding strategy has the added benefit of accumulating reserves for future benefits expenditures rather than losing them with fully insured premiums. Part of the difficulty here is the structure of self-insuring plans offered by traditional fully insured carriers. We have seen many cases in which the claims target is established to guarantee an underfunding whereas the stop loss premium is way too high. This has the effect of eliminating the benefits of the program for the employer. My advice would be ensure that you include quotes outside the traditional fully insured carrier market and then compare the plan structures. What percentage of the monthly contributions are going to pay for what element of the plan.
Third, corporate involvement in the administration depends on the provider and the TPA as well as the client. Some clients want more hands on and some TPA's either require it or provide flexibility as to division of responsibility. I can tell you that our clients only responsibility is to fund the monthly contribution if that is their choice.
Fourth, lasering does isolate specific risk for a re-insurer for 1 year. It should refer to a known high risk condition of an applicant that a re-insurer will not cover at the quoted rate and according to the terms of the plan. A good broker will shop rates amongst a variety of reinsurers and present the options. Therefore, a lower rate with a laser may not be the best solution as opposed to a higher rate without one. With that said, a laser is almost always removed after the first year of coverage. Be aware that fully insured carriers are also buying reinsurance for their own plans and their rates will reflect their costs and risk tolerance.
Finally, there are plans out there that don't contain all of the required benefits and coverages required under the ACA both on the fully insured side as well as the self-funded side. It makes sense to ask your broker if the plan in question will leave you vulnerable to any of the future fines associated with the mandates or coverage requirements. The delayed implementation of the employer mandate is going to cause a lot of havoc when and if it goes into effect on 1/1/15.
Finally, I agree with Nate. Self-insuring is a strategy that pays back over the long term with the right plan and approach. The financial benefits will grow over time. It can save money in the first year but the real benefit is the ability to manage and fine tune your plan going forward and avoid the double digit annual increases we have become accustomed to in future years.
James,
Thank you for reading and commenting on my post. You are just strengthening my concerns. The original question asked for experiences and pros and cons. Perhaps I have had different experiences than you. I am not saying that self-insured plans aren't a valuable way to control costs and manage your plan. I am saying be careful that you are prepared for them.
First, there are many TPAs that don't collect any ACA fees and make it the responsibility of the business. I shouldn't have said "most". You may still save in other taxes, but be aware of the fees and if the business is responsible to pay them directly, or if the TPA is collecting them.
Secondly, you again strengthen the fact that you must fully fund the plan. You are to be commended to not take on a client unless they fund at least the 100% level. There are TPAs that try to do otherwise just to make themselves look good.
Third, corporate involvement does depend on the provider and the TPA as I said. Be aware of the involvement expected.
Fourth, make sure that you understand lasering and what it means to your group. It can be devastating.
Fifth, I agree that you need to know if your plan is ACA compliant or not. But Self-insured plans are more likely to cut benefits since they don't have the same level of ACA compliant requirement.
Finally, the financial benefits MAY grow over time. I have seen poorly designed self-insured plans hurt the business enough to put them to the edge of bankruptcy. Self-insured plans are not a panacea, and if you aren't working with someone, broker, TPA, or insurance company, that has experience, be careful.
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