Approximately 50 million workers and their families receive benefits
through self-funded (also known as self-insured) group health
plans. A self-funded health plan is one in which the employer
assumes the financial risk for providing its employees health
care. Basically, the employer pays the cost of the claims, instead
of paying an insurance premium. The employer often mitigates
the risk through plan design and/or stop loss insurance.
Why self-fund?
There are many reasons why an employer would self-fund.
- The employer gains control over the benefit plan design and
can customize it.
- The employer is not subject to conflicting
state health insurance
regulations and benefit mandates, as these plans are regulated
under federal law (ERISA, HIPAA).
- The employer is not subject
to state health insurance premium taxes.
- The employer is not
funding the insurance company's profit margin.
- The employer
maintains control over the health plan reserves, enabling maximization
of interest income - income the insurance
carrier
would otherwise earn.
- Basically, self-funding provides
greater control over the plan, and possibly some financial
incentives.
How does it work?
Typically, an employer and their consultant use
a Third Party Administrator (TPA) to assist in putting all the
pieces together to self-fund. These pieces for administration
of the
plan include;
pharmacy network, provider networks,
case management, stop
loss insurance, out of network re-pricing, nurse helpline, etc.
The TPA typically coordinates with all the vendors and can suggest
vendors to the consultant/employer that best meet
their
needs.
Once the pieces are in place, the TPA receives and adjudicates
the claims, provides all the customer service, and coordinates
the vendors on an on-going basis. The employer funds the claims.
The TPA will track any large claims for filing with the stop loss
vendor.
What is stop loss insurance?
Stop loss is reinsurance for the
employer. There is specific and aggregate stop loss.
- Specific stop
loss protects the employer against any one large claim for
a patient.
- Aggregate stop loss protects the employer against any
excessive
claim expenditures for the entire group.
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