Buhr & Associates
Health Insurance
Health Insurance
Fully Insured
In a fully insured plan, the employer pays a per-employee premium to an insurance company, and the insurance company assumes the risk
of providing health coverage for insured events. These plans “pool” together many employers with other companies of similar size in the
same regional area. Rate increases are geared towards the overall claim experience of that pool of employers. Employers with healthy
employees and low claim usage will offset costs for other pool employers with severe medical costs.
Self-Insurance (ASO):
In a self-insured or administration only (ASO) plan the employer acts as its own insurer. In the simplest form, the employer uses the money
that it would have paid the insurance company in premiums and instead directly pays health care claims to providers. Self-insured plans
often contract with an insurance company or other third party to administer the plan, but the employer bears the risk associated with
offering health benefits.
Many employers seek to mitigate the financial risk of self funding claims by purchasing stop loss insurance. Stop-loss insurance is insurance
that protects insurers against large claims. These policies typically provide for risk retention limitations both on a specific claim and
aggregate claims basis after a certain threshold has been exceeded in claims. Insurance companies themselves, as well as self-insuring
employers, purchase stop-loss coverage in order to protect themselves should they incur any catastrophic claims.
An important aspect of self funded group health plans lies in the requirement that the employer remain liable for funding of plan claims
regardless of the purchase of stop loss insurance. The stop loss policy runs solely between the employer and the stop loss carrier and
creates no direct liability to any employee covered under the plan. This feature provides the critical distinction between fully insured plans
(subject to State law insurance regulations) and self funded health plans which, under the provisions of Section 514 of ERISA, are exempt
from state insurance regulations.
Stop-loss policies are instrumental in establishing a "worst-case scenario", or aggregate for any given year. The aggregate stop-loss helps
establish a finite number that can be compared to a plan's guaranteed fully insured cost. If the aggregate cost does not exceed the plans'
fully insured guaranteed cost, self-funding may be a viable option. Another way to look at aggregate insurance is an umbrella policy that caps
a company's liability within a specified time period.
Historically self-funding has been most effective for large corporations and Fortune 500 companies with over 1,000 employees but with the
rising cost of healthcare over the past ten years at a rate of close to 10%, self-funding has become an option for smaller employers.
While some large employers self-administer their self funded group health plan, most find it necessary to contract with a third party for
assistance in claims adjudication and payment. Third party administrators (TPA's) provide these and other services, such as access to
preferred provider networks, prescription drug card programs, utilization review and the stop loss insurance market. Insurance companies
offer similar services under what is frequently described as "administrative services only" or "ASO" contracts. In these arrangements the
insurance company provides the typical third party administration services but assume no risk for claims payment.
Perhaps the biggest advantage of self-funded plans is transparency of claims data. Self-funded employers who contract with a TPA receive a
monthly report detailing medical claims and pharmacy costs. Knowing this information becomes instrumental in controlling costs by shifting
buying patterns. Other advantages include plan flexibility, access to national PPO networks, and financial savings.
As health care cost continue to rise more employers will look to alternative ways to finance their healthcare plans. Consumer driven plans
have become popular recently as employers look to shift some of the accountability to employees. HSAs (health savings accounts) and HRA
(health reimbursement accounts) encourage employees to shop around for the best value when considering elective medical procedures or
filling pharmacy prescriptions. Self-funded plans go one step further in that they provide all claims data to employers, allowing them to set
up an EPO (exclusive provider organization), basically a PPO, hand selected by the organization to eliminate high cost providers.
Self-Insurance Options for Smaller Employers:
Due to the fact that self-funding allows group plans to avoid many of the Health Care Reform regulations, including some fees and modified
community rating, insurance companies have introduced innovative self-funded plans for small groups, some down to 5 or 10 employees.
Also called Fixed-funding or Level-funding, these products have all the components of self-funding bundled together to create a turn-key
solution for small employers. They typically include set monthly costs to protect against swings in claim costs, and state clearly what your
maximum costs would be. These well-designed products act and feel like a fully-insured plan, but allow you the opportunity to save money
when your claims run well, and avoid many of the costly Health Care Reform requirements.