Self-Funded Medical Plans

The employer pays claims covered by the benefit plan directly.

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 benefit plan 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, 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.

There are several products offered by Stop-Loss Carriers. The more traditional is Stop-Loss insurance that 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. This is usually combined with 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.

Another product is called Level Funded Premium coverage. This is very similar to the traditional coverage already mentioned, except the Employer pays a predetermined amount every month very much like a Fully Insured Plan so the cash flow remains at a predictable amount every month. At the end of the contract period, and money remaining in the claims account belongs to the employer. This product has a "Pooling Point" that is similar to a specific deductible, once an individual reaches the Pooling Point, the stop loss carrier is responsible for the balance of that individual's covered claims for the rest of the plan year so there is no additional funds spent from the employer's claims account on this individual.

Still another product is an Aggregate Only plan. In this type of plan, the employer deposits money every month into a claims account just like in the other two types of plans. The claims are paid from this account without regard to how much is paid out on any one individual. If all the money in the claims account is paid out on claims, the stop loss carrier steps in and funds any additional claims that come in.

In any one of these types of self-funded plans, the employer has a known maximum liability for the plan year. Any funds in the account after the plans liabilities are paid remains the employer's money.

So what is the difference between a fully insured plan and a partially self-funded plan?

Assuming that the premium for a fully insured plan and the costs of a self-funded plan are close to being the same, the self-funded plan gives the employer more flexibility on benefit design and cash flow. 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 without increasing the employers risk with the use of the stop loss coverage.

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 liability 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. There is also more information on claims through reporting that show how the money for paying claims was spent. Changing plan design is a lot easier when it is your own plan and you can key in on certain features in the plan with the information on how these features affected the spending on claims. 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.

By working with several stop loss carriers that have at least an A rating with A. M. Best we can provide the stop loss policy that best suits the employer’s situation and is competitively priced.

Our background as insurance agents gives us insight to what is needed in the line of reports so the employer understands what the status of the plan is on a monthly basis.