Q: What is a fully insured health plan?
A:  A fully insured health plan is one where the employer pays a premium to an insurance company for employee health coverage.  The insurance premium is due in advance for the coverage and is actuarially projected to cover anticipated claim costs and the insurance company’s overhead, commissions, reserves, various risk changes and taxes.  In exchange for the premium, the insurance company assumes the risk of providing health coverage and performs various tasks such as the printing of employee booklets.

Forty years ago, all plans were fully insured and this type of funding was considered the norm. Today, almost 70% of U.S. employers self-fund some portion of their health care plans.

Q: What is a self-funded health plan?
A:  A self-funded (or self-insured) health plan is one in which the employer assumes some or all of the risk for providing health care benefits to its employees.  The employer can completely redesign the plan if they want.  The risk can be minimized by obtaining a stop-loss policy providing specific and aggregate protection against large and numerous claims.

Q: Why do employers self-fund their health plans?
A:  There are many advantages in self-funding, the primary advantage being cost savings:

• In a self-funded plan, you don’t pay insurance company risk and retention charges.  The employer retains control over the health plan reserves, enabling maximization of interest income.  Insurance companies traditionally credit an employer much less than the actual interest/income received from that employer’s reserves.  The difference between what the insurance company credited an employer and what that employer can earn by its own investments is another advantage of self-funding. 
• Insurance companies are subject to state regulations; self-funded plans only to federal regulation, thereby giving an employer almost total control of the plan design.  Most states have numerous laws mandating certain coverage for an insured plan written in their jurisdiction.  A self-funded plan doesn’t have to comply with these state laws unless the state mandates are stricter than the federal guidelines.  Therefore and employer can customize their health plan design focusing on their employees actual needs and cost savings.  Additional, an employer can contract with Preferred Provider Organizations (PPO) and case management firms, which will assist in decreasing or managing cost for the plan.
• An employer doesn’t’ have to prepay coverage, thereby improving his cash flow.  Insurance premiums are due in advance.  Self-funded plans pay claims as they’re presented to the claims administrator, usually 60 to 90 days after medical services are received.  Therefore, during the first year of self-funding, an employer pays for only nine to ten months of claims.  This improved cash flow can be used to the employer’s advantage.
• An employer only pays benefits based on his employee’s histories, not someone else’s employees.  In all but the very larges of health plans, an insurance company pools the experience of its clients.  Therefore, an employer often finds itself paying for the poor histories of someone else’s employee population.  In self-funding, each employer pays only for its own employees’ benefits.
• A Third Party Administrator “TPA” administrative costs are significantly lower than any insurance carrier “ASO” Administrative Services Only and those by an insurance carrier or HMO.
• A TPA should provide prompt, accurate and efficient claims service.  The TPA is working for the Employer, where Insurance Companies are working for shareholders and investors.
• The TPA should be fully capable to handle for eligibility, claim payment, employer/employee on-line access.
• The TPA can provide monthly detailed reports, modeling, Benchmarking and lag reports based upon divisions and specific dates requested by the employer.
• The employer has the flexibility to determine the plan design most appropriate to their needs.        

Q: With what laws must the self-funded plan comply?
A: The self-funded plan comes under all relevant federal laws, none of which is specifically for self-funded plans.  Depending on the company’s line of business and size, the federal laws applicable to health plans are ERISA, COBRA, the Americans with Disabilities Act, the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Civil Rights Act and various budget reconciliation acts such as TEFRA, DEFRA, HIPAA, FLMA, Newborn Mother Act, Mental/Nervous Parity Act and the Affordable Care Act, (“ACA” “Obamacare”).  If you have questions, we will be glad to review the specifics with you.

As of January 2014 a new State tax will be imposed on Health insurance issuers as a result of the Affordable Care Act “ACA”.  This fee will apply to all fully-insured medical and/or dental business as well as Medicare and Medicaid lines of business.

This is a permanent tax and will increase beyond 2018 based upon the annual rate of premium growth.  The fee is divided between all Health Insurers with for-profit insurers being required to pay twice as much as not-for-profit insurers.

THIS FEE IS NOT APPLICABLE TO SELF-FUNDED HEALTH PLANS!

To obtain a self-funded proposal from SecureOne,
see Required Information for a Presentation/Proposal.