Self Funding for Small Groups

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.

What’s New?

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!

MLR Rebate Checks Are in the Mail!

Medical Loss Ratio (MLR) Rebate Checks

The Patient Protection and Affordable Care Act (PPACA) included a check-and-balance system to ensure that insurers were using premium dollars to mostly pay claims on behalf of an insured block of business.  In the Small Group and Individual Market, insurers must spend 80% of premium dollars for payment of claims, administration of Plans, etc.  (85% for Large Group.)  Any insurer spending less than those amounts are required to issue “rebates” back to their insured population in a given block of business.  Even though insurers diligently try to file their rates at such a level to ensure they are close – without a crystal ball, none should be expected to get it right on the money.  As a result, checks are being distributed to those policyholders in the blocks of business affected by the mandate.

Rule Regarding Distribution to Employees

MLR Rebate checks not only affect the contributions made to health insurance premiums by the employer – but also any employee who participated via premium withholding.  Just because the employer (Plan Sponsor) receives the check from the insurer, doesn’t mean that it can be deposited and forgotten.  Employers are required to distribute any applicable portion back to participating employees – and have a couple options on how to do so.  The Department of Labor (DOL) issued guidance on distribution in Technical Release No. 2011-04 here.

Are MLR Rebates Subject to Federal Income Tax?

Depending upon the method used to contribute toward the payment of health insurance premiums (i.e. pre-tax deductions, etc.), and how an employer chooses to distribute to an employee, MLR rebates could be subject to income tax withholding.  For further reading, please refer to Section D of the IRS FAQ here.

Employers Need Help Calculating $

Most employers are pleasantly surprised when they receive a check from their insurance carrier – especially when they are fairly sizable as reported by several of our clients.  We hope that most also understand the implications for failure to distribute properly and seek advise on what exactly to do with it.  In order to assist, we can provide a calculator published by Anthem / Wellpoint to help employers determine the amount of rebate that each participating employee is entitled to receive.  If you would like a copy of this calculator, please email me at:

W-2 Reporting Requirement Under PPACA

W-2 Reporting Mandates Under PPACA

The Patient Protection and Affordable Care Act (PPACA) included a mandate that requires employers to report the aggregate cost of healthcare via annual W-2 filing.  Employers filing 250 or more W-2’s were required to begin filing for tax year 2012 (W-2’s issued in 2013), but employers filing fewer than 250 W-2’s currently fall under transition relief until such time that the IRS releases additional guidance.  The IRS has stated that this transition relief will apply through calendar years that start at least six (6) months after further guidance is issued.  With this being said, employers with fewer than 250 W’s can rest assured that transition relief will continue through 2015.

Information Required for W-2 Reporting

PPACA requires employers to report the aggregate cost of “applicable employer-sponsored coverage”.  This includes health insurance, as well as dental, vision and other benefits – in some instances.  The IRS has published a chart for employers to use as a guide when determining what benefit plans must be reported.  The chart can be referenced by clicking here.