benefit plans offer many advantages versus fully-insured plans:
- Flexibility of Benefit
- Cash-Flow Advantages
- Opportunity to
save substantial premium $$$’s.
- Freedom of Choice
- Component Approach
of Fully Insured Plans vs Self-Funded Plans
Fully insured plans
consist of Fixed Costs only…if your claim levels are lower than
expected, the carrier earns more profit. Self-funding gives
an employer the opportunity to participate in the profits if a plan
experiences moderate to low claim levels. Premiums paid, overhead
and administrative costs are also significantly lower than in a
fully insured plan.
The idea of self-funding
may be somewhat new to many companies, however, the concept has
been in existence since the 1940's. This alternative funding
approach is gaining popularity with employers as they examine ways
to gain control of spiraling health care costs.
An employer can eliminate
or reduce costs associated with a more traditional fully insured
plan, such as premium tax, reserving requirements, risk and profit
charges, retention and marketing expenses.
The employer controls
funds which would normally be remitted to the insurer as premium
resulting in an improved cash flow.
The success and safety
of a self-funded plan is enhanced by Stop Loss Insurance.
Employers who self-fund
normally set-up a trust to handle loss-funds (claims) monies and
engage a Third Party Administrator, such as Alternative Benefit
Plans, to handle administration of the Plan and Payment of claims.
Insurance coverage protects
self-funded plans from unpredictable claim expenses.
Insurance is provided in
two forms, the combination of which will limit the self-funded maximum
liability to a pre-determined level. These coverages are known
as Specific and Aggregate Insurance.
With the protection
offered by both Specific and Aggregate Stop Loss Insurance,
the maximum annual cost for self-funding a benefit program is determined
at the beginning of the benefit year.
Funds that are not
used for claim expenses reduce the cost of the plan for that year,
and the monies saved are an asset of the employer's plan.
Specific Stop Loss
Loss Insurance offers a self-funded
plan protection against large individual claims. The average
Specific Stop Loss level is set at approximately 10% of an employers
expected claims. After eligible plan benefits for any individual
reach the Specific Stop Loss level, all eligible benefit payments
above that point are covered by the Specific Stop Loss Insurance.
Stop Loss Insurance
Stop Loss Insurance offers
a self-funded plan protection by limiting the self-funded total
claims liability to a pre-determined level. This maximum annual
claims liability is not insurance premium, but rather money which
could be needed to pay claims. A loss fund is set up through
which claims are paid on an "as needed" basis. Claims
are not expected to exceed this limit. However, if claims
do exceed this limit of liability, excess claims are insured by
Aggregate Stop Loss Coverage.
The Aggregate Accommodation
is an optional component of the Aggregate Excess Loss Insurance.
The Aggregate Accommodation provides money to the Employer's health
plan account during any month in which accumulated self-funded paid
Losses (claims) exceed a pre-determined amount (usually by $2,000).
claims in future months fall below the year-to-date accumulated
claims liability maximum, the employer will repay the advance up
to the accumulated maximum claims liability.
If at the end of a
Certificate Period the insured terminates its self-funded plan,
the Aggregate Deductible and the Loss Claim Basis for the Aggregate
Excess Loss Insurance will be modified similarly as follows:
The Loss Claim Basis
means, for the Certificate Period, only the actual amount of benefits
incurred by a Person during the Certificate Period and paid during
the Certificate Period or within 90 days immediately thereafter.
The revised Aggregate
Deductible will be the sum of: (a) three times the twelfth month
Accommodation Point, plus (b) whatever the Aggregate Deductible
would have been for the Certificate Period if the insured had not
terminated its self-insured Plan.*
* Actual wording differs
by stop-loss carrier, see contract for details.