Self-Funded Group Health Plans
The traditional platform for self-funded plans has always been somewhat complex, and usually involved multiple parties working together to allow the plan to function properly, and hopefully with a good degree of success. Generally, an employer sponsors the plan; a third-party administrator processes the claims; and an insurance carrier waits in the background to take over in the event of large claims. This type of arrangement was more often than not one that smaller employers were not willing to put their pocketbooks on the line for.
The Affordable Care Act (ACA), however, is changing the landscape for health insurance in many ways – including for smaller employers who just might be better suited for self-funding.
What’s the Difference?
Most small group health plans sold have been fully-insured plans. Meaning, the insurance carrier takes full responsibility for payment of covered claims (fiduciary responsibility) no matter the $ size. Employers are simply responsible for making the monthly premium payments based upon the rate tables established at the beginning of a Plan Year. Rates generally stayed constant during that Plan Year – absent enrollment changes.
In a self-funded plan, employers or Plan Sponsors assume fiduciary responsibility (the exposure most small employers felt was too risky in the past) for payment of covered claims. In true self-funded plans, the employer pays monthly fixed costs (e.g. TPA fees, Stop-Loss Premiums, etc.) PLUS whatever claims were incurred/processed by the TPA for covered services. To say the least, the monthly layout can be compared to a moving target.
As the ACA continues to place it’s demands and mandates on the Individual and Small Group health insurance markets, carriers have been scrambling to develop solutions to help employers who want to continue to offer affordable coverage to their employees. Alas, the creation of what I would call hybrid self-funded plans. Hybrid plans that look, feel, and appear to be just like the fully-insured plans we have all been accustomed to – but are built, written, and underwritten self-funded plans that skate around/under most of the ACA mandates.
Is a Hybrid the Right Model for You?
Most employers would agree that their #1 goal when looking at health insurance options is to save money; closely followed by quality benefits. The objective of these new hybrid plans is to accomplish both. But, they are not designed for everyone.
As with all self-funded plans of the past, hybrid plans require medical underwriting (one of those things that the ACA does not impact). In other words, self-funded plans are NOT guaranteed issue and administrators and/or stop-loss carriers will be cherry picking those groups that appear to have the best actuarial odds going for them.
Additionally, because these hybrid plans build a claims pool into the monthly premiums billed to the group (with the hope that a refund is possible at the end of the Plan Year), it is possible that some groups will find that either a “grandmothered” renewal (for 2014) or even a fully-insured plan on the ACA side of the business could provide a more attractive monthly premium – with no fiduciary responsibility.
It is my recommendation that all employers weigh the pros and cons of all options, and make your final decision once you have all the figures to compare. Me and my staff at Health Insurance Shop are just a phone call or an email away. Let us know if you have questions or would like to see options for your group!