Self-funding—otherwise known as self-insurance—provides the flexibility to design a custom health benefits plan that can meet the precise needs and goals of a company/organization and its members. Additionally, the insights gained from administering claims can be leveraged to better manage the risks and future costs of healthcare.
Unlike a traditional fully-insured health plan, where a fixed, pre-determined monthly premium is paid to an insurance carrier, in a self-funded arrangement the employer assumes the financial risk of providing healthcare benefits to its employees. The employer pays for claims out-of-pocket as they are incurred.
The cost of a self-funded plan has fixed components similar to an insurance premium. The administrative fees, stop-loss premiums, and any other set fees charged per employee are referred to as fixed costs and are billed monthly based on plan enrollment. The employer sponsoring a self-funded plan also pays the claim costs incurred by the members enrolled in the plan, and this cost varies from month to month based on plan utilization.
Stop-loss insurance reimbursements are made if the claims costs exceed the catastrophic claims levels in the policy. So the total cost of a self-funded plan is the fixed costs plus the claims expense less any stop-loss reimbursements.
Most Self-Funded Plans Are Totally Self-Funded
Except for the very largest corporations, most employers who choose to self-fund their employee health plan really “partially” self-fund, meaning they purchase stop-loss insurance to cover catastrophic claims that exceed actuarially anticipated levels.
Only Very Large Companies Can Afford to Self-Fund
Most of the recent growth in self-funding has actually been among smaller companies, some with as few as 25 employees. The economic advantages of self-funding do not change with the number of employees enrolled in the plan. The key is purchasing the appropriate level of coverage for catastrophic claims, which is referred to as stop-loss or excess-loss insurance. Many smaller companies have found self-funding to be very cost-effective and flexible.
Self-Funded Plans Are Often Rejected by Healthcare Providers
Today, some form of self-funding covers two-thirds of the employees covered under an employer-sponsored health plan. Health care providers see patients that are covered by self-funded plans every day.
Self-Funding is too Much Work for the Employer
An employer is required to do little more day-to-day administrative work with an ACS-managed self-funded health plan than with an insured plan. We handle the day-to-day claims processing and virtually all customer service inquiries.
Self-Funded Plans Are Not Subject to Regulation
Nothing could be further from the truth. Self-funded plans are subject to the Employee Retirement Income Security Act (ERISA), which was designed by Congress to provide stringent consumer protections. ERISA requires that each benefit transaction follow the coverage provisions outlined in the plan document. Furthermore, HIPAA Privacy, Security, and Portability provisions also apply to self-funded plans. At ACS Benefit Services, we make sure our business practices comply with these regulations and we help our clients with regulatory compliance.
By funding claims directly, an employer avoids the costs of claim reserves, retention to cover the insurance company’s administrative costs, profit margin, risk charges, premium taxes, and a contingency margin, which are included in an insured premium on top of the costs of expected claims. Today, these reserves and retention charges can range from 10% to 30%.
Self-funding allows employers to design a health benefit plan to address specific employee needs, as well as company objectives. Self-funded plans are also exempt from state insurance laws that typically mandate certain benefits for insured plans.
Plan design flexibility and ongoing analysis of plan expenses allow self-funded employers to make the plan design changes needed to manage costs. Self-funded plan designs can include strategies to monitor utilization, steer care to discounted provider arrangements, and assure appropriateness of care, all of which encourage wellness and provide incentives for wise utilization of care.
Our website provides both employers and members with comprehensive access to their health plan information 24 hours a day, seven days a week. Users can quickly access information on eligibility, claims payments, and much more.
Most employers with self-funded plans pay claims as they occur, rather than funding them through advance premium payments. By taking this approach, employers can put the money that isn’t used for paying claims back into the company, instead of giving it away unnecessarily to an insurance company. At ACS, we provide our clients with clear reports and documentation of how every health plan dollar is spent.
Our website provides both employers and members with comprehensive access to their health plan information 24 hours a day, seven days a week. Users can quickly access information on eligibility, claims payments, and much more.
The flexibility of self-funding helps employers use their health benefit plan the way health benefits were originally intended – to attract and retain the finest employees. Benefits can be customized to meet your employees’ needs and to satisfy company objectives. ACS will help you design your self-funded plan and handle all day-to-day administration.
Measuring Employer’s Ability to Manage Plan
Prescription drug costs are a large and growing component of every group’s overall claim costs. ACS has proven solutions for controlling the cost of prescription benefits.
We partner with leading independent pharmacy benefit managers to develop some of the most effective pharmacy benefit solutions available to self-funded employers. These programs include discounted services at participating retail pharmacies and mail-order service for maintenance medications.
Comprehensive management reporting helps us monitor prescription costs and develop new benefit recommendations. Our network’s pharmacy director also provides detailed prescription utilization reviews to our clients with specific recommendations to control prescription drug expenses. The result is more affordable prescription drug benefits.
Most of today’s health benefit plan designs are built around provider networks, encouraging the use of network medical and dental providers by offering lower deductibles and coinsurance. Some arrangements go even further by establishing a plan design in which benefits are substantially reduced if care is not received from network providers.
At ACS, we provide our self-funded clients with access to a wide range of Preferred Provider Organizations (PPOs)—from large national PPOs to the best regional networks—that can effectively meet the needs of their employees.
Increased government regulations, increased health care consumption, and costly new medical technologies continue to fuel rising medical care costs. How can employers minimize costs when the price of medical treatment continues to rise?
At ACS, our results-driven approach gives our clients an advantage by offering new and different strategies and better alternatives to more traditional managed care plans. Our medical cost management services include the following:
Care Review targets health plan costs with a proactive emphasis on overall health management. We apply hospital stay pre-certification, health management, disease management, and large-case management to control costs.
Pre-Certification is used to evaluate each employee’s treatment plan and the employee’s need for inpatient or outpatient care. Our program combines medical expertise with nationally recognized criteria and treatment guidelines to determine the most appropriate course of medical treatment.
Health Management combines a wide range of programs to review and analyze a company’s health status. From initial screenings to continued health education, health management can have a positive impact not only on the health perceptions and lifestyles of employees but also on the company’s bottom line. The goal is to identify and address potential serious health risks before they become chronic illnesses requiring ongoing treatment, hospitalization, prescription medications, or surgery.
Disease Management is an integrated approach designed to lower the cost of care for chronic illnesses such as diabetes, high blood pressure, or hypertension. We encourage disease management in order to minimize the complications associated with chronic conditions and to help reduce future expenses. We also work with clients to educate employees and their families on lifestyle modification. Results are achieved with the help of counselors, physicians, nurses, and educational resources such as disease-specific websites, newsletters, and more.
Large-case Management is provided to improve the quality of care and control costs during inpatient stays through appropriate discharge planning. Alternative treatment options are taken into consideration and savings negotiations are conducted for some care. Because large-case management is typically associated with serious health conditions, the opportunity for savings can be significant.
With a self‑funded health plan, the employer typically does not assume 100% of the financial risk. Rather, a form of insurance known as stop‑loss or excess‑loss insurance is purchased that will reimburse the employer for catastrophic claims that exceed a predetermined level. This protects the business from high‑dollar claims that would otherwise cause significant financial damage.
There are two main types of stop‑loss insurance. Specific stop‑loss insurance protects the plan against an individual catastrophic claim. Aggregate stop‑loss insurance covers claims that exceed a given amount for the entire covered group.
If your limit for specific stop-loss is $50,000 (per member per year) and one member incurs claims of $75,000, the plan’s liability would be limited to $50,000 and the remaining $25,000 would be reimbursed by the stop-loss carrier.
When an entire covered group has expected claims of $500,000 per plan year, reimbursement by the stop-loss carrier would normally take place if actual claims exceed 125% of the expected claims, or $625,000 overall.
The $625,000 amount is referred to as your attachment point, or the amount above which the carrier has liability.
The cost of a self-funded plan is the total of fixed costs (e.g., administrative expenses, stop-loss premiums, etc.) and the claims paid by the plan less stop-loss reimbursements.
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