This presentation is part of the B & I Webinar Series 2016. It explains with how the different self-funding models will impact your company.

1. Self-Funding for the Mid-Sized Employer:
Can It Save Your Company Time, Money and Resources?
A CBIZ Benefits & Insurance Services Program

2. Cole Harris
CBIZ Employee Services Organization
Vice President of Sales & Marketing, Tennessee
Self-Funding for the Mid-Sized Employer2
Your Presenter

3. Points to Cover
Alternative Funded Plans
Fully Insured vs. Self-Funded Plans
Self-Funded Plan Components
Best Practices to Prepare for a Successful Self-Funded Experience
Risk and Rewards
Self-Funding for the Mid-Sized Employer3

4. ALTERNATIVEFUNDEDPLANS
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 High-deductible fully insured
premium plan and self-fund to a
lower deductible
 Health Reimbursement Account
(HRA)
 “Level-Funded” Programs
 Legally, a self-insured plan, but
looks like fully insured
 Pay “conventional equivalent”
rates each month
 Year-end accounting for
potential “dividend”
 Attractive to employer
concerned with budgeting issue
of self-funding
 “Minimum-Premium” Programs
 Legally, a fully insured plan, but
looks like self-funded
 Immediate savings with claims
 Risk ceiling
Self-Funding for the Mid-Sized Employer

5. FULLYINSUREDVERSUSSELF-FUNDED
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• Employer pays fixed monthly premium to the carrier
• Carrier provides set of administrative services
 Network of Providers
 Claims Adjudication
 Member Eligibility
 Utilization Management Reports
 Disease Management Programs
 Rx Network and Formulary
 Wellness and Other Online Tools
 Some Affordable Care Act (ACA)
Reporting Requirements
Fully Insured Model
Self-Funding for the Mid-Sized Employer

6. 6
• Carrier takes 100% of the claims risk
 If claims run good, carrier makes profit
 If claims run poorly, carrier loses money
• Plans are state-filed, so there is limited flexibility in plan
provisions
• Premiums also include risk charge and profit margin
• Carrier pays taxes
 State premium taxes included
• Carrier controls the plan
• Carrier retains pharmacy rebates
Fully Insured Model
FULLYINSUREDVERSUSSELF-FUNDED
Self-Funding for the Mid-Sized Employer

7. 7
• Employer pays fixed monthly cost to vendors to perform specific function for
its plan
 State insurance taxes are not applicable
 Third Party Administrator (TPA):
o Claims Adjudication
o Member Eligibility
o Utilization Management Reports
o Customer Service
 Stop-Loss Reinsurance
o Specific stop-loss coverage protects employer from any single
catastrophic claim
» This amount is set based on group size and risk tolerance
o Aggregate stop-loss protects employer from an overall bad claims year
as a group
» This is usually assumed at 125% of “expected” claim cost
Self-Funded Model
FULLYINSUREDVERSUSSELF-FUNDED
Self-Funding for the Mid-Sized Employer

8. 8
• Rent a Network of Providers
 Take advantage of network discounts
• Wellness Vendor
 Provide wellness tools and assistance in setting up and tracking
wellness initiatives
• Prescription Benefits Manager (PBM)
 Carve out the administration of the Rx to a third party to ensure best
discounts and management programs
 Retention of rebates either split or fully received by client
• These services can either be “carved out” (unbundled) with different
vendors or “bundled” with an insurance carrier
Self-Funded Model
FULLYINSUREDVERSUSSELF-FUNDED
Self-Funding for the Mid-Sized Employer

9. FULLYINSUREDVERSUSSELF-FUNDED
Fully Insured Self -Funded
Employer pays fixed monthly premium to the carrier Employer pays fixed monthly cost to vendors to perform specific
function for its plan
Carrier provides set of administrative services:
• Network of Providers
• Claims Adjudication
• Member Eligibility
• Utilization Management Reports
• Disease Management Programs
• Rx Network and Formulary
• Wellness and Other Online Tools
• Some ACA Reporting Requirements
Third Party Administrator (TPA):
• Claims Adjudication
• Member Eligibility
• Utilization Management Reports
• Customer Service
Additional services can either be “carved out” (unbundled) with
different vendors or “bundled” with an insurance carrier
• Rent Network of Providers: Evaluate Network Discounts
• Prescription Benefits Manager (PBM): Carve out the
administration of the Rx to a third party to ensure best discounts
and management programs
• Wellness Vendor: Provide wellness tools and assistance in
setting up and tracking wellness initiatives
Carrier takes 100% of the claims risk:
• If claims run good, carrier makes profit
• If claims run poorly, carrier loses money
Premiums also include risk charge and profit margin
Carrier pays taxes
Employer assumes risk, may determine degree of risk assumed
through purchase of stop-loss reinsurance
• Specific stop-loss coverage protects employer from any single
catastrophic claim*
*This amount is set based on group size and risk tolerance
• Aggregate stop loss protects employer from an overall bad
claims year as a group**
**This is usually assumed at 125% of “expected” claim cost
Carrier controls the plan Employer Guarantees Benefits
Plans are state-filed, so there is limited flexibility in plan provisions Plan-design flexibility limited to TPA capabilities to administer
9 Self-funding for the Mid-Sized Employer

10. HOWISITPAID
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Fixed Cost
 Paid to TPA or carrier on a
“per employee per
month” (PEPM) basis
 Typically includes
administration fee, stop-
loss premium, network
rental and commissions
Claims Cost
 Bank account or transfer of
payment system is set up
between employer and TPA
 Employer receives weekly invoice
of claims utilization and pays
invoice for claims accordingly
Claims Cost
 Bank account or transfer of
payment system is set up
between employer and TPA
 Employer receives weekly invoice
of claims utilization and pays
invoice for claims accordingly
Self-Funding for the Mid-Sized Employer

11. PREPARATION
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 Overall claims cost PEPM
 Trending year over year – 6%? 15%?
 Large-claim risks
 Rx utilization
 Cost drivers
 Diabetes?
 Musculoskeletal?
 Neoplasms?
 Emergency room?
 Difficult to obtain if under 100 employees
Obtain and analyze claims data to get a grasp of your
company’s utilization patterns
Self-Funding for the Mid-Sized Employer

12. PREPARATION
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• Obtain proposals from marketplace for
self-funding from vendors
• Compare cost of fully insured premium
to fixed costs of self-funding
The difference between these two
amounts will be the amount of
money the employer can spend
on claims to determine financial
risk on being self-funded
The difference between these two
amounts will be the amount of
money the employer can spend
on claims to determine financial
risk on being self-funded
Self-Funding for the Mid-Sized Employer

13. PLANOPTIONSAMPLE-150EMPLOYEES
Compare the $500 PEPM to the actual claims based on your
analysis to see if it’s a good risk financially
 Many factors to consider, such as trending, large claims
over specific stop loss (SSL), ACA fees, etc…
 Must have a good consultant to assist in this analysis!
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Plan Cost
Fully Insured Monthly Premium
• Premium
$105,000
• $700 PEPM
Self-Funded Fixed Cost (Carrier)
• Administration
• Specific Stop Loss With a
$75,000 Deductible
• Aggregate Stop Loss at 125% of
Expected Cost
• Total Fixed Cost
$50
$140
$10
$200 PEPM
$700 - $200 $500 difference to pay claims
Self-Funding for the Mid-Sized Employer

14. COMPONENTSFORSUCCESS
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 Long-Term Cost Containment
 Employee Wellbeing
 Wellbeing focus
 Physical, Financial, Social, Community, Purpose
 Population Health Programs
 Large Case Management
 Chronic Conditions – Outreach for Gaps in Care
 Lifestyle Coaching
 Wise Health Care Consumerism – Multi-Year Strategy
 Value-Based Plans – Pharmacy
 Encourage members to choose plans that lead to
informed and effective health care choices
 Defined contribution strategy
 Long-Term Cost Containment
 Employee Wellbeing
 Wellbeing focus
 Physical, Financial, Social, Community, Purpose
 Population Health Programs
 Large Case Management
 Chronic Conditions – Outreach for Gaps in Care
 Lifestyle Coaching
 Wise Health Care Consumerism – Multi-Year Strategy
 Value-Based Plans – Pharmacy
 Encourage members to choose plans that lead to
informed and effective health care choices
 Defined contribution strategy
Wellbeing Strategy
Self-Funding for the Mid-Sized Employer

15. 15
COMPONENTSFORSUCCESS
 Provide members with information to
make wise decisions regarding their
health care
 Cost-Estimator Tools
 Emergency Room Cost Versus Urgent
Care
 Generic Rx Versus Brand Rx
 Why Health Care Costs Increasing
 Advocates of Their Own Health Care
 Educated employees are better
equipped to make the most cost-
effective decisions regarding their
provider choices
Education and Communication
Self-Funding for the Mid-Sized Employer

16. 16
COMPONENTSFORSUCCESS
 Employer and consultant will receive
claim reports from the TPA/carrier on a
monthly basis
 Monthly reports to be aware of general
claim utilization
 Quarterly and annual claims analysis to
identify trends, spikes, risks, etc…
 If available, annual meeting with the
carrier physician or Rx specialist
 Stay on top of claims utilization patterns
so there are very few surprises at
renewal time
Claim Review and Analysis
Self-Funding for the Mid-Sized Employer

17. RISKS&REWARDS
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 Claim fluctuation makes it impossible to budget monthly
cost
 Not funding for claims accurately can leave insurance
fund in poor financial condition or claimants with
unfunded claims
 Added complexities due to additional vendors
 Employer usually has fiduciary responsibilities
 Greater administrative responsibilities, including HIPAA
 Overall financial liability is increased
 Increased ACA reporting requirements
Risks
Fully
Insured
Fully
Insured
Hybrid
Self-
Funded
Hybrid
Self-
Funded
Lower
Annual
Variable
Risk
Higher
Annual
Variable
Risk
Self-Funding for the Mid-Sized Employer

18. 18
RISKS&REWARDS
 Increased plan design flexibility (exempt from state
mandates)
 Improved cash flow, both initially and if claims are less
than expected – employer keeps the money instead of
the insurance company!
 Reduced retention/claim-administration costs with
carriers
 Do not pay for insurance company’s profit margin
 Currently, exempt from ACA Health Insurer Fee
 Exemption from state premium taxes (approx. 2%)
 Ability to isolate each component of the plan costs
 Ability to manage your own risk through wellness and
education
 Greater access to plan claims data
Rewards
Self-Funding for the Mid-Sized Employer

19. ADDITIONALCONSIDERATIONS
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 Set specific stop-loss deductible and contract parameters at
the appropriate level, based on claims and risk tolerance
 What is employer’s risk tolerance and cash flow? Can you
accept liability for each claim to $50,000? $75,000?
(higher is cheaper)
 Must be sure contract provisions provide coverage so that
no claim “falls through the cracks”
• 12/12 - Covers claims incurred in 12 months and paid in
same 12 months
• 12/15 - Covers claims incurred in 12 months and paid in
15 month (run-out)
• 15/12 - Covers claims incurred in 15 months and paid in
12 months (run-in)
 Be aware of “reserve” liability
 Run-out costs for claims that have been incurred but not
yet paid or reported (IBNR)
Self-Funding for the Mid-Sized Employer

20. FINALTHOUGHTS
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 Self-funding is not an
automatic money-maker
 There are risks involved, so be
aware of them, along with
terms associated with self-
funding, before making a
decision
 Self-funding is a commitment,
not a funding arrangement to
try on a year-by-year basis
 Emphasis is on data, wellness,
communication and education
 Enlist the assistance of a
qualified consultant (CBIZ!)
experienced in self-funding
 True consultant, not just a
“broker”
Self-Funding for the Mid-Sized Employer

21. QUESTIONS
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THANK YOU FOR YOUR TIME!
QUESTIONS AND NEXT STEPS?
Self-Funding for the Mid-Sized Employer

22. CONTACTINFORMATION
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CONTACT INFORMATION
Cole Harris, RHU
CBIZ Employee Services Organization
cmharris@cbiz.com
865.251.5149
Self-Funding for the Mid-Sized Employer