Employers with fewer than 100 eligible employees have often avoided self-funding their group health insurance programs because they’ve been afraid of the risk. However, with the rising costs of employee health benefits, many employers are turning to self-funding to get control of spending.
There are four main components of any group health plan.
- TPA or Carrier: Responsible for paying claims
- Network: Includes the providers and physicians accessible for care
- Stop-Loss/Reinsurance: Ensures that large risks are insured
- Pharmacy: Manages the prescription drug aspect of the plan
With a fully insured plan, the insurance company manages all the components and employers pay a fixed premium over 12 months. The carrier assumes the risk and manages claims. They profit during periods of low risk and run a deficit when claims exceed premiums paid. Using this model, employers with less than 100 enrolled employees do not typically have access to crucial data for making informed decisions.
With a self-funded program, employers design the plan, fund employee medical claims, and pay for administration of the program using an insurance company or third-party vendor.
The employer also communicates plan details to employees and receives claims information about their group, which they can use to create programs to better manage costs.
Premium allocation
In a fully insured plan, 100% of the premium dollar goes to the carrier, which pays the claims and manages the plan. In a self-insured plan, up to 87 cents of each dollar covers claims. The remainder covers reinsurance and administrative fees.
There are two types of reinsurance in self-insured plans:
- Specific Stop-Loss: Covers catastrophic risks, typically driven by a few members who account for most claims that are paid
- Aggregate Stop-Loss: Covers the overall liability of the plan and protects your maximum liability
High-cost claims
High-cost claims are frequently driven by serious conditions such as cancer, cardiovascular diseases and neonatal complications. The incidence of million-dollar claims has risen significantly due to advancements in medical treatments and medications. This has led to new products in the insurance market that help protect employers.
Captive insurance
One way to mitigate risk is by joining a captive. Captive insurance enables organizations to take control of their program, reduce costs and maintain a healthy, engaged workforce while spreading risk across a group of employers.
Employers can maximize their benefits investment in good years by capturing profit that would have otherwise gone to the insurance company if they were fully insured. Think of it as an automatic savings account for funding the plan. Plus, employers get data regardless of their size, giving them greater ability to manage future claims.
If managed appropriately, being in an employee benefits captive may be less risky because employers can use their data to drive strategy, minimizing future cost increases. Fully insured groups that don’t receive data may be left with little direction and a significant renewal increase during a high-risk period as carriers try to recoup their losses. The trick is to work with an experienced consultant that can select and design a program that’s right for you.
ALT/r can help you find the right alternative insurance for your needs.
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