1. Integrity Administrators, Inc.
Self-Funding
Is it right for you and your company?
Welcome the guests

2. What is Self-Funding? So, just want is Self-Funding???????
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3. Definition of Self-Funding
The setting aside of funds by an employer to meet his losses, and to absorb fluctuations in the amount of loss, with the losses being charged against previously accumulated funds
Also known by other terms such as:
Partial Self-Funding
Fully Self-Funded
Self Insurance
The Definition is, Also known as……………
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4. History of Self-Funding
Self-Funding first appeared in a limited way about 1930, with the formation of voluntary employee’s beneficiary associations providing health care benefits to needy members
It replaced the informal employee practice of passing the hat
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5. History of Self-Funding
Self-Funding, as it is known today, began with and grew during the post-World War II period of economic expansion
Substantial growth in self-funded health care plans occurred in the 1950’s when jointly administered plans, operating under the Labor-Management Relations Act of 1947, began using tax-exempt trusts
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6. History of Self-Funding
Dramatic growth in self-funding occurred in the 1970s when:
ERISA preemption
Clarification of the legal environment
Rising health care costs
Risk Management development
Cost-Containment
High interest rates
were all being experienced.
ERISA PASSED IN 1974
HIGH INTEREST RATES – MY COMPANY MADE 20% INTEREST ON A $100,000 C.D.
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7. History of Self-Funding
In the late 1980s we saw:
Medium and smaller employers move to self-funding.
Size alone no longer determines a self-funding candidate.
Many employers with as few as 50 participants are routinely and comfortably self-funding.
Employers with fewer than 50 participants are also self-funding with HRA or SMRA plans.
EMPLOYERS WITH AS FEW AS 50 EMPLOYEES STARTED SELF FUNDING THEIR PLANS.
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8. Who has Self-Funded Plans?
Percentage of Covered Workers in Partially or Completely Self-Funded Plans
Small Firms ( Workers) 17%
Midsize Firms ( Workers) 56%
Large Firms (1,000 – 4,999 Workers) 82%
Jumbo Firms (5,000+ Workers) 94%
Combined, 63% of the employees in the U.S. actually participate in some form of Self-Funding
Kaiser Family Foundation for 2015
SELF FUNDED FIRMS COMBINED = 63% This is an increase from 49% in 2000.
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9. Who has Self-Funded Plans?
Percentage of Covered Workers Enrolled in
Self-Funded Plans with Stop Loss Insurance
Small Firms ( Workers) 68%
Midsize Firms ( Workers) 90%
Large Firms (1,000 – 4,999 Workers) 85%
Jumbo Firms (5,000+ Workers) 43%
Combined, 60% of the employers in the U.S. actually participate in some form of Self-Funding
Kaiser Family Foundation for 2015
SELF FUNDED EMPLOYERS WITH STOP LOSS – COMBINED = 60%
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10. Who has Self-Funded Plans?
Over the last decade it has become more and more common for smaller companies, some
with no more than 25 employees, to establish self-funded health plans.
It all comes down to establishing the appropriate level of risk for the employer.
WITH THE HIGH COST OF PREMIUMS MORE SMALLER ERS ARE MOVING TO LIMITED SELF-FUNDED PLANS.
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11. Why Self-Fund? SO, WHY ARE THESE EMPLOYERS SELF-FUNDING.
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12. Why Self-Fund? Why should a company Self-Fund its Health Plans?
Lower Plan Costs
Lower Premium Taxes
Reduced State Regulations
Accessibility to Claims Data
Savings in Claims Cost
Flexibility in Plan Design
Flexibility in Provider Networks
Ability to Audit/Review Claims
Retention of Profits
JUST READ DOWN THE LIST.
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13. Why Self-Fund?
Why Should a Company Self-Fund its Health Plans? - Lower Plan Costs!
Reduced Plan Administration Costs – by 30% or More.
Reduced Premiums Costs – by 50% to 85%.
Ability to protect against catastrophic claims.
JUST READ DOWN THE LIST.
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14. Why Self-Fund?
Why should an company Self-Fund its Health Plans? - Lower Premium Taxes!
Premiums taxes run from 2% to 3% of your plan costs
Because Stop-Loss premiums are much lower than Fully Insured plans, the employer that self-funds has a much lower premium tax load
STEP BY STEP GO THROUGH EACH REASON.
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15. Why Self-Fund?
Why should an company Self-Fund its Health Plans? – Reduced State Regulation!
Self-funded plans are governed by ERISA (Employee Retirement Income Security Act). As such they are not required to cover state-mandated benefits.
Examples
Infertility Treatment
Acupuncture
Prescription drugs prescribed for a use other than for what they were approved for by the FDA.
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16. Why Self-Fund?
Why should an company Self-Fund its Health Plans? – Accessibility to Claims Experience Data!
It is rare that an employer with less than 100 lives has access to their paid claims experience.
With a self-funded plan your Third Party Administrator should be able to provide you with detailed claims experience that is invaluable for securing renewal rates.
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17. Why Self-Fund?
Why should an company Self-Fund its Health Plans? – Savings in Claims Cost!
Changing from a fully insured plan to a self-funded plan usually results in an initial three month period during which you have very low claims.
During this period the previous carrier is paying “run-out” claims, while your plan is building reserves.
The reserves are held to pay future claims instead of paying it to the insurance company.
FIRST THREE MONTHS YOU CAN BUILD RESERVES.
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18. Why Self-Fund?
Why should a company Self-Fund its Health Plans? – Flexibility in Plan Design
Tailored benefits to meet your employees needs.
Employers gain control over how premiums are spent.
PPACA has placed some restrictions on plan designs but there are still advantages.
.A rated carriers or better. Lloyds of London if necessary
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19. Why Self-Fund?
Why should an company Self-Fund its Health Plans? – Flexibility in Provider Networks!
You have the ability to choose the provider network that fits the needs of your employees in your region rather than insurance company’s statewide needs
Your Third Party Administrator can be the direct contract with providers for eligibility and claim payments
TALK ABOUT UHN/NNP, A LOCAL PPO, VS. BLUE SHIELD.
BLUE SHIELD DOES NOT WANT TO TAKE THE TIME TO DEVELOP A STRONG NETWORK IN THE RUAL SETTING.
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20. Why Self-Fund?
Why should an company Self-Fund its Health Plans? – Ability to Audit/Review Claims!
Your Third Party Administrator will assist in providing specialists that independently audit claims for “un-bundling” and incorrect billing
The net savings (after audit review expense) can range from 10% to 25%
This net savings goes to the employer rather than the insurance company
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21. Why Self-Fund?
$$$$
Why should an company Self-Fund its Health Plans? – Retention of Profits!
Net Profit Margins (Premiums less Claims) average in the 5% range but have been as large as 9%
In a Fully Insured Plan, the insurance carrier retains any excess profits
In a Self-Fund Plan, the employers retains any and all profits
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22. Why Self-Fund? Why should a company Self-Fund its Health Plans?
Lower Plan Costs
Lower Premium Taxes
Reduced State Regulations
Accessibility to Claims Data
Savings in Claims Cost
Flexibility in Plan Design
Flexibility in Provider Networks
Ability to Audit/Review Claims
Retention of Profits
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23. Protection Against Large Claims
Specific Stop Loss Coverage
Aggregate Stop Loss Coverage
PPO Network Discounts
Rap PPO Networks
Out of Network Claims Negotiation
Hospital Precertification
Large Case Management (LCM) Review
Hospital Bill Audits/Reviews
So, why are smaller firms self-funding? Mention old policies vs. Advanced Funding.
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24. Types of Excess/Reinsurance Contracts
Specific Coverage Provides insurance coverage for the Plan for each person who exceeds the Specific Deductible ($20,000, $30,000, $50,000, $100,000, or higher).
Aggregate Coverage Provides an additional cap on the total claims paid by the Plan under the specific deductible (“Sleep at Night” insurance).
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25. Types of Excess/Reinsurance Contracts
Types of Specific and Aggregate Policies
Months Claims are Incurred / Months Claims are Paid
12/12
12/15
12/18
15/12
18/12
PAID Contract
Aggregating Specific Contract
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26. The Role of the Administrator
Plan Document Preparation and Coordination
Consulting with the Broker & Employer
Draft Plan Document
Review Plan Doc. With Broker & Employer
Prepare final Plan Doc. Ready for signature
Prepare Summary Plan Description (SPD)
Prepare all Plan Amendments
Same as above
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27. The Role of the Administrator
Department of Labor & IRS Filings
Form 5500
Schedules A & C
1099s
SBCs
Same as above
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28. Claims and Premium Funding
Fixed Costs
Variable Costs - Hospital, Physician, and other provider Claims - Out of Network Claims
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29. Claims and Premium Funding
Fixed Costs (PEPM*)
Specific Premiums
Aggregate Premiums
Administrative Fees
PPO Network Access Fees
U/M, LCM Fees
Consulting Fees
PEPM= Per Employee, Per Month
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30. Claims and Premium Funding
Variable Costs
Claims Funding • Initial Deposit • Weekly Claims funding
Large Case Management (LCM) Fees • Hourly Rates
Prescription Drug Costs
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31. Unexpected Risks Lasering
Special Individual Deductible on High Risk Plan Members
Options • Build the risk into the rates • The Pros and Cons to this option
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32. Advantages of Self-Funding
Improved Cash Flow
Freedom of Plan Design
Competitive Excess Loss Quotes
Personalized Service
ERISA Pre-Emption
Overall Employee Benefits Cost Savings
Just touch on some of the items listed.
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33. Disadvantages of Self-Funding
Assumption of Additional Risk
Employee Concerns (No one likes change, Education is a must).
Same as above
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34. Is Self-Funding For Everyone?
No, Research Your Needs.
Consider the Size of your Group
What Amount of Risk can you afford?
What is the Make-up of your Group? (Age & Gender makeup, etc.)
Evaluating all the Pros and Cons
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35. If Self-Funding is Right For Your… Putting it All Together
Plan Design and Set-Up
Spend some time and get it right the first time
Establishing Fund Reserves
Don’t spend the savings. One out of five years will be bad.
Premium & Claims Funding
Keep your claims funding separate from your premiums.
Administration
Quality v. Price
Renewal Preparation
Start the process 2.5 Months Out
Year End
Don’t forget the 5500 and 1099 Filings
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36. If Self-Funding is Not Right For Your You May Want to Consider - - - -
Start with an HRA Plan (Health Reimbursement Arrangement)
Uses a Fully-Insured, High Deductible Plan.
The Deductible must be no less than $1,200 for a Single and $2,400 for a Family
Annual Contribution Limits are $3,100 for a Single and $6,250 for a family
The Employer must contribute the same about for each member, regardless of the amount of claims.
Unused Benefits can roll over from year to year
Contributions, both Employer’s and the Member’s are made on a pre-tax basis
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37. If Self-Funding is Not Right For Your You May Want to Consider - - - -
Starting with an SMRA Plan (Supplemental Medical Reimbursement Arrangement)
Uses a Fully-Insured, High Deductible Plan
$1,500 to $5,000
The Employer Self-Funds a Portion of the Claims Under the Insurance Company’s Deductible
The Employer only pays for claims that are actually incurred
Average Savings can range from 20% to 45%
Involves more work for the member
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38. Integrity Administrators, Inc.
Employee Benefits Plan Specialists
Proudly providing services in
the Western United States
1787 Tribute Road, Suite E
Sacramento, California 95815
(800)
Source materials data used in this presentation include reports from various vendors to Integrity Administrators, Inc. (e.g. WLT Software of Florida), and Integrity Administrators’ Internal reports.