Check Out Self Insurance as Health Coverage Deadline Looms


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Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas Self-insured health plans traditionally have been the realm of large employers. But a combination of the impact of the Patient Protection and Affordable Care Act and a greater appetite among insurance companies to offer stop-loss coverage to smaller employers may tip the scales in favor of self-insurance for some. Here's an overview of the situation.

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Check Out Self Insurance as Health Coverage Deadline Looms

  1. 1. Toll Free: 877.880.4477Phone: 281.880.6525www.hrp.netCheck Out Self Insurance as HealthCoverage Deadline Looms
  2. 2. Although 2014 seems to be approaching fast, many smaller employershave yet to make important decisions about how they will confront thenew coverage provisions under Patient Protection and Affordable CareAct (PPACA) which are to take effect next»»Thomas Mangan, CEO of United Benefit Advisors, a large partnership ofindependent benefit advisory firms, expects a 25 percent uptick in thenumber of small employers choosing to self-insure by the end of the year.The number has been rising over the last couple of years, according to arecent report from Kaiser Health News.Self-insurance, of course, puts you in the role of the insurance company,and gives you considerable flexibility with plan design and the possibilityof saving money -- "in the double digits," Mangan estimates. It also comeswith new burdens and liability.»
  3. 3. Self-insured plans are governed by ERISA, and not subject to state-specificmandated coverage of particular services, as fully insured, state-regulatedplans»» Depending on the state, and assuming you dont want to cover extrastate-mandated benefits, that can generate savings around 5 percent,and even as much as 15 percent in states with a long menu of expensivemandates, Mangan says.
  4. 4. PPACA» The big "loophole" under PPACA is that self-funded plans are exemptfrom the requirement to provide specified "essential healthbenefits." Nevertheless, if these self-insured plans do offer any essentialhealth benefits they cannot place lifetime or annual limits onthose benefits provided under the plan.There is no guarantee that self-insured plans will always be exempt fromthe essential health benefit requirement, warns Barry Newman, anattorney with The Wagner Law Group, if legislators and governmentagencies try to level the playing field.Also, Newman warns, while self-funded plans are not currently requiredto satisfy PPACAs annual deductible and out-of-pocket limits, theDepartment of Labor has indicated it intends to bring self-funded plansunder this requirement in the future.»»
  5. 5. Finally, self-funded plans cannot discriminate in favor of the "highly paid."Although in theory this requirement now also applies to insured plans, asa practical matter, for historical reasons, it is not a matter of concern forthose plans, according to»»»Nevertheless, for now, savings could be meaningful for self-insuredemployers who want to maintain a lean plan. They are, however, covered bythe laws requirements to provide free wellness and enumerated womenspreventive health services. Also, self-funded plans are subject to the sameminimum ("bronze" level) cost-sharing standard holding employersresponsible for at least 60 percent of the plans actuarially determined value.There are two additional PPACA-specific reasons why self-insuring might berelatively more attractive next year. One is that premiums for fully insuredplans covering fewer than 100 employees will need to be based oncommunity rating rules. This means fully insured employers with younger andhealthier employees will see their rates go up. The flip side is also true,however: employers with less healthy demographics may benefit.
  6. 6. Premium Tax»»Finally, a large part of the new PPACA-imposed premium tax on healthinsurers will be passed on to employers. The tax will be determined by aformula based on an aggregate revenue goal, but is estimated to bebetween two and three percent of plan premiums next year.Self-insured companies may be affected to a small degree because theinsurers which provide stop-loss coverage and any administrative servicesto self-insured plans will also face the same tax.The impact will be small for self-insured employers, Mangan says,because stop-loss coverage generally falls in the range of 15 percent ofoverall plan cost, and additional services -- such as access to medicalnetworks and prescription drug cards -- add more to the tab.»
  7. 7. Other factors must be kept in mind when considering self-insuring, beyond PPACA-related savings, of course. For one thing, the insurer of a fully funded health plan assumes fiduciary responsibility for the operations of the plan. www.hrp.netYou become the fiduciary when you self-insure. Outsourcing much of the plan administration to an insurer or a third party administrator doesnt get you off the hook as a fiduciary. In addition, employers should know that the sponsor of a self funded plan will have greater responsibilities, and potential liabilities, under HIPAAs privacy and security rules.»»
  8. 8. Dealing with Claim Spikeswww.hrp.netAnother fundamental consideration is whether you have the financial capacity to accommodate spikes in claims. Even if total claims over a 12-month period dont exceed projected amounts, if a high proportion of them come in early in the year, youll need to have sufficient reserves to keep up.Also, while stop-loss coverage limits your ultimate liability for claims, aggregate stop loss (stop loss for the plan as a whole, as opposed to specific stop loss which is based on an individuals claims) typically doesnt kick in until claims add up to as much as 125 percent of projected amounts, depending on the policy. (It is now becoming more affordable to buy stop-loss policies that take over at 110 percent, Mangan says.)An industry rule of thumb, according to Mangan, is that "youll come out ahead three out of five years," when you add it all up.»»»
  9. 9. Throughout the whole process of reviewing the self-insurance option, dont lose sight of the bigger picture of why you are offering health benefits, and the level of health benefits you will need to maintain to remain competitive in your labor market. Also, you will want to avoid facing penalties by having a plan so lean that employees would be better off opting to buy coverage with tax subsidies through a public health exchange.
  10. 10. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USAwww.hrp.netE-mail : info@hrp.netToll FreePhoneFax:::877.880.4477281.880.6525281.866.9426