Self-Funded Medical Plans
What are Self-Funded Medical Plans and aren't they risky?
A self-funded medical plan is when the employer pays claims covered by the policy directly rather than going through an
insurance company. In a traditional health insurance plan with a policy bought from insurance company the claims
costs, administration fees for processing claims, HIPAA administration, COBRA and network fees, if applicable, are
all rolled into one cost which is the premium. On a self-funded plan these costs are broke out so the employer can
see exactly what each cost is. In most situations the employer contracts with a Third Party Administrator to provide
the administration of the plan and the adjudication of the claims according to the plan documents.
Don't self-funded plans have huge financial risks to the employer?
Not if the plan has Stop-Loss insurance. Stop-Loss insurance is a policy that is purchased by the plan to limit the
financial risk to the plan and the employer. Stop-Loss insurance works in two ways, the first is a specific
stop-loss. This is a figure that is set that depends on group size and it can be viewed as a deductible on an
individual. Specific stop-loss can range from $10,000 on a small group up to any limit. The specific stop loss is the
most claims dollars on an individual that a plan is liable for; if an individual exceeds the stop-loss then the
stop-loss insurance is liable for the balance of that individual's claims for the rest of the plan year, up to
the maximum coverage under the plan. The other way that stop-loss insurance works is an aggregate stop-loss. This
is a limit on the total dollars that the plan is liable for in a plan year. This is very important to the employer
since they can know what their worst case scenario is for the plan year. Once stop-loss insurance is included in a
plan it really becomes a partially self-funded plan.
So what is the difference between a traditional plan and a partially self-funded plan?
Assuming that the premium for a traditional plan and the costs of a partially self-funded plan being the same. Once
the premium for the traditional plan is sent to the insurance company that money is gone! Regardless of the amount
paid for claims. On a partially self-funded plan any money that is set aside for claims and is not used for claims
remains in the plan's account and is available for the next plan year. This is where the possibility for savings exists.
What happens when we have a bad claims year on a partially self-funded plan?
What is a bad plan year? A year in which most or all of the money projected for claims is spent on the claims, remember
with the stop-loss insurance there is a maximum and it is a known amount. Then what? Basically the same thing that
happens on a traditional plan, your rates for the next year are going up. However, with the partially self-funded plans
there are more options for controlling the costs, such as going to a higher specific or aggregate. Changing plan design
is a lot easier when it is your own plan and you can key in on certain features in the plan. Flexibility is a key asset of a self-funded plan.
Selecting a TPA is an important part of the self-funded plan, no matter how low the costs of a plan, if the claims are not paid
in a timely manner the employees are not happy. One of the major reasons to have a health insurance benefit is to keep
employees, so it is important that they have a health plan that works for them.
Our friendly staff helps to ensure that an employee using a self-funded medical plan that is administered by BAS is a
good experience in an often trying situation. By having experienced personnel in the claims area and combining that
with our experience as insurance agents, we have a team that is capable of understanding the employer's needs and
answering the employees concerns.
Intermountain Benefit Administrators (IBA) in Denver, Co. is one of the largest re-insurer brokerage firms in the western
U.S. Our association with them provides one of the largest markets for re-insurance coverage available. This allows
us to provide the most competitive quotes available to a wide range of industries.
Our background as insurance agents gives us insight to what is needed to make a good sales presentation and what is needed -
in the line of reports so the employer understands what the status of the plan is on a monthly basis.