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This presentation is designed to provide the information needed to understand self-funding, assist you in explaining the solution to clients and then determine whether it is right for their company by ...

This presentation is designed to provide the information needed to understand self-funding, assist you in explaining the solution to clients and then determine whether it is right for their company by comparing and contrasting it to a fully insured solution.

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  • Fully Insured Example: Acme Company is fully insured with Fully Insured Carrier and pays a premium of $1,500,000.00 annually for their health insurance plan. Claims experience shows that Acme Company only had $1,000,000 in claims and admin expenses.  The fully Insured Carrier keeps $500,000 in profits.Self-Funded Example:Acme Company's group health insurance  is self funded with a Third Party Administrator with reinsurance. Acme Company’s potential worst case scenario for the year is $1,600,000 annually. Acme company pays $20,000 a month in fixed premium costs and holds in claims reserves $1,360,000 for potential claims. The $1,360,000 is retained by Acme Company and it is theirs to utilize as they see fit until claims materialize. At the end of the year Acme Company’s claims are $1,000,000.  Acme Company retains the $360,000 it reserved in a worst case scenario. Acme Company realizes a $260,000 savings by going partially Self Funded versus Fully insured.The employer is protected by three facets of insurance protection, the specific deductible or (Specific Stop Loss) which protects against any one person claims exceeding a specified amount, the integrated aggregate which protects against any excess monthly claims (so the employer may budget and allocate only the conventional equivalent premium each month, then not have to worry about an adverse month when more than usual claims are presented), and an annual aggregate reinsurance to protect against claims greater than the conventional equivalent.

Self-Funding Presentation Self-Funding Presentation Presentation Transcript

  • SELF-FUNDING 101
  • EXPERTISE The Alliance moves health care forward by controlling costs, improving quality, and engaging individuals in their health. We are an employer-owned, not-for-profit cooperative: Founded in 1990 200 members; 90,000 individuals Wisconsin, Illinois and Iowa
  • OBJECTIVES To understand key elements of the self-funding model To be prepared to objectively compare self-funding to other healthcare options To examine the need for a longterm strategy for employee health benefits
  • DEFINITIONS Self-Insured Fully Insured The employer contracts with a health insurance carrier, which then assumes responsibility for the risk of health care for enrollees. The employer ERISA purchases the insurance. The employer accepts responsibility for the risk of health care for enrollees. The employer self-funds the plan rather than paying a premium. ERISA “The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.”
  • DEFINITIONS, cont. Plan Sponsor The entity that establishes and sponsors the plan and has fiduciary responsibility for the health plan. Plan Participant An employee or dependent who is covered by the health plan. Stop Loss Insurance Purchased from an insurance carrier by employer to cap catastrophic claims risk. Reimburses the employer for claims that exceed a predetermined level and limits the costs on an individual case basis (specific coverage). The limit on group claims is known as aggregate coverage.
  • HEALTH BENEFITS TRENDS
  • NATIONAL TRENDS Health Care Cost Increases
  • NATIONAL TRENDS Health Care Costs Continue to Rise Rapidly 22 Years Ago 2013 10 years from now Annual Cost, single $1,480 $5,884 Expected to double Annual Cost, family $4,040 $16,351 Expected to quadruple Average annual cost increase 15% 9% Expected to outpace inflation Source: Kaiser Family Foundation and Health Research Educational Trust Employer Health Benefits 2013Annual Survey
  • NATIONAL TRENDS Today a majority of large employers self-fund 57% of all covered workers in the U.S. were under some form of self-funded medical plan arrangement Percentage of self-funded employers increases with employer size 82% of large employers are self-funded. *Large employers are defined are having more than 50 employees. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2013
  • NATIONAL TRENDS Impact of Health Reform on Self-Funded Plans Reformers may object to ERISA exemptions because they fear it hinders reform on the state level. Legislators may take aim at tax breaks or propose a tax on self-funded plans. Self-funding proponents counter by noting that self-funding enables companies to make changes that improve employee health while having a positive influence on the value of health care. Massachusetts is the only state to have enacted health reform similar to the ACA, and they have seen an increase in the percentage of workers in self-insured plans among all firm-size cohorts.
  • REACTION TO NATIONAL TRENDS What can employers do to control rising costs and improve cash flow? > Cost shifting > Reduce benefits What employers are considering while looking into self-funding? > > > > > > > Nature of their business Financial experience and tolerance for risk Budget Bargaining agreements Geographic location Size and demographics of employee population Plan design
  • HOW IT WORKS: Weighing the Risk SELF-FUNDED FULLY INSURED Employer assumes all risk up to stop Low to no risk loss attachment point -Potential maximum is known -Actual maximum depends on claims Pays for what is used -Varies month to month; year to year Earn interest on account Employers know in advance the amount that must be paid out over a specific time period
  • HOW IT WORKS: The Risk Equation SELF-FUNDED FULLY INSURED Employer assumes greater risk in exchange for greater control and potential cost savings. Assuming more risk=Greater control Carrier assumes risk, but control is lessened and costs may be higher
  • HOW IT WORKS: Funding the Plan SELF-FUNDED FULLY INSURED Employer assumes the risk, with stop-loss insurance providing financial protection against Coverage is purchased from an insurance catastrophic claims carrier Can pay medical claims as incurred like other Premiums determined annually based on: corporate expenses, or can deposit expected or employee group size maximum costs into an account each month employer's claims experience carrier's desired profit margin After claims are paid, employer keeps year-end difference, including interest income
  • HOW IT WORKS: Identifying the Players Other Possibilities: •Pharmaceutical Benefit Manager (PBM) •HSA Administration •Case Management •Disease Management •Wellness Program •Care Coordination
  • HOW IT WORKS: Plan Design Employer Broker TPA
  • HOW IT WORKS: Developing the Plan Design Customize benefits Assert control over coverage & exclusions Tie plan to larger goals > For example, a wellness-based plan may pay higher levels for preventive care if employees participate in a HRA, or > Reduce the amount of employee contribution for those who participate in HRA. Remain focused on long-term strategy
  • HOW IT WORKS: Plan Design Is Anchored By Summary Plan Description ERISA: Must be clear and complete source of information for employees > Eligibility provisions > Benefits available > Coverage termination or denial Serves as contract between employer and employee Used by claim administrator & stop-loss carrier
  • HOW IT WORKS: The Role of the TPA > > > > > > > > > > > > > Plan Design Bid for stop-loss coverage May set up bank account for employer Handles enrollment, determining & maintaining eligibility Adjudicating & paying claims based on the SBC Customer service Works with the chosen network(s) Issue claims payments Provides utilization reports Consolidated billing Case management Preparing reports May provide additional services
  • TYPE OF BENEFITS That are Self-funded Medical Prescription drugs Short-term disability Dental Vision
  • DISADVANTAGES & ADVANTAGES
  • DISADVANTAGES Variables in costs and claims Legal and fiduciary responsibility Administrative requirements May be difficult to leave the plan
  • ADVANTAGES: Risk management effectiveness Employers select the amount of risk they wish to retain Flexibility is built into the system to adapt to employer needs Insurance company has preset limits to guide risk levels Risk Margin/Profit Margin is eliminated in self-funded plans to create immediate savings
  • ADVANTAGES: Cost Savings No state premium tax on plan Carrier’s profit margin removed Lower administration costs Released from compliance with costly state mandates (ERISA rules your plan) Cash flow may be enhanced (no need to pre-pay for coverage) Retain interest on unused funds
  • ADVANTAGES: Cost and Utilization Control Employer controls plan design Employer can choose cost and utilization control programs > Disease management programs and pharmacy benefit program Employer can obtain network savings > Cooperatives, PPOs
  • ADVANTAGES: Plan Design Employer control of plan design makes it possible to focus on longterm strategies: > Returning money to the bottom line > Creating a better workplace culture > Creating a more productive workforce > Reaction to business conditions
  • ADVANTAGES: Focus on Value Access to data that lets the employer determine the value of health benefits > Value-based purchasing may be an option Access to data that helps design benefits that shape enrollees’ health practices > Opportunity to engage employees in their health
  • ADVANTAGES: Morale and Productivity Improved morale > Employer creates culture of investing in employee’s health and wellness > Employer not forced to reduce plan benefits to keep costs down
  • COMPARISON: Plan Design SELF-FUNDED FULLY-INSURED Employer crafts plan design, co-pay, deductible, etc. "Cookie cutter" plans offered to employers Plan must meet ERISA standards Plan must include state mandates Employer chooses provider network Plan design and network determined by insurer Full access to claims and pharmaceutical data Limited access to claims data
  • COMPARISON: Employer Responsibilities SELF-FUNDED FULLY-INSURED Active HR role; often internal benefit administrator Minimal administrative role Craft plan design, pick provider network Plan design, provider network come from insurer Pay claims via TPA Pay premiums Purchase stop-loss coverage Plan and premiums revisited annually or when term ends Active review of claims activity
  • COMPARISON: Cost Components SELF-FUNDED FULLY-INSURED Fixed Costs Fixed Premium times number of employees (Administrative Fees, & Stop-Loss Premiums) Variable cost of medical claims Don't pay in advance or overpay Retain interest income When costs are lower insurance company makes more profit
  • EXAMPLE Self-Funded and Fully Insured Example -- ACME Co. SELF-FUNDED FULLY-INSURED Worst case scenario for year is $1.6 million Premium of $1.5 million Acme pays $20K/month fixed premium Claims & administrative expense of $1 million Claims reserve held is $1.36 million Fully insured carrier keeps $500,000 Acme retains $360K of reserves Acme saves $260,000 Source: Self Funding Employer Healthcare & Workers Comp Conference, www.selffundingconference.com
  • WEIGHING THE WORTH of Self-Funding Your Company
  • DECISION-MAKING FACTORS Top level commitment to actively managing health benefits, including cost Risk tolerance and cash flow analysis Demographics of the employee populations Interest in exploring health strategies and initiatives that help restrain cost Focus on health benefit value
  • DECISION-MAKING FACTORS Short-term Cost savings > > > > > Savings in state premium taxes Savings from state mandates Savings from short-term discounts Savings from risk margin/profit margin > Savings from administrative costs 3.5 to 5% over HMOs, depending on size of the group
  • DECISION-MAKING FACTORS Willingness to make a long-term commitment to enhance return > Maximizing Return On Investment (ROI), given the variables that influence costs and claims, relies on long-term implementation of health plan strategies Explore self-funding with dental plan > > Less complicated; lower risk Provides a good “feel’ for self-funding issues With annual maximums set, it is typically financially advantageous for all group plans to self-fund the dental plan
  • EXAMINE Your Client’s Health Benefit Approach Step one: Determine who is involved in the decision-making process Step two: Take a strategic, business management approach to key issues > > View health care as a business unit where profits and loss can be managed, rather than merely tolerated Consider impact on operations through productivity, and ‘presenteeism’
  • EXAMINE Your Client’s Health Benefit Approach Step three: Review both the type of information that is gathered and how it is shared Step four: Weigh risk tolerance and evaluate cash flow Step five: Decide what factors and criteria will drive the process
  • COMPARE YOUR CLIENTS To The ‘Top Performers’
  • ANALYZING TOP PERFORMERS Towers Perrin found a $1,200 per employee annual cost difference between companies that are “high” and “low” performers in 2009 > > $10,104 per employee for “low” group $8,904 per employee for “high” group
  • TOP PERFORMERS High-performers… > > > “…Focus on supporting and improving employee health” “…Commit to rigorous – and continuous – management of health plans and delivery processes” “…”Build employee health into business strategies and organization cultures” Source: Towers Perrin 2009 Health Care Cost Survey
  • TOP PERFORMERS Among high performers: > > > 78% say their company plays a major role in identifying and managing employee health risks and conditions 76% say they’re committed to building a “culture of health” 87% view employee health as a “critical component of superior business performance” Source: Towers Perrin 2009 Health Care Cost Survey
  • TACTICS of Top Performers Clearly articulate strategies Engage leaders Understand employee populations Engage employees Optimize investments Support employee health Measure for success Source: Towers Perrin 2009 Health Care Cost Survey
  • QUESTIONS To Consider What resources are currently available to develop health care strategies and implement health care initiatives? How does the employer measure the performance and the value of health care benefit spending? What metrics are available to track, monitor, and manage health care “spend?”
  • SUMMARY Self-funding is… …A viable option for employers who understand the administrative demands, the risk, and the potential rewards. …An approach that may not be right for employers unprepared or unwilling to pursue this challenge. …An opportunity to take a strategic approach to health benefits.
  • Thank you for viewing this presentation created by The Alliance. If you would like to Learn More about The Alliance please visit our website at www.the-alliance.org Call us at 800.223.4136 or email us at thealliance@the-alliance.org