Many of us in the industry are evaluating our positions and client recommendations after the recent announcement on the delay of PPACA's employer mandate penalty.
How does this affect the drive forward for the self-funded world and the small employers that are fully insured with plans to move to self-funded in 2014? The plan should be to stay on course.
There seems to be a lack of knowledge in the broker world regarding self-funding, and now we have another year to adjust the learning curve. Many brokers ask why they would—and should—recommend self-funding employee benefit plans to their clients.
Among other reasons:
- Self-insured plans are not tied to community rating for determining premiums as are fully insured arrangements.
- Self-funded plans are more adept at allowing employers to determine what its true costs of coverage are. With this data, employers can address high-cost services more directly.
- Self-funded plans are likely to be in a better position to manage future uncertainty because they escape greater regulation that the health insurance industry faces.
- Review of premium increases by the Department of Health and Human Services under PPACA doesn't apply to self-funded plans. Premium increases are most often based on claims experience.
- Self-funded plans avoid the adverse selection insured plans frequently encounter.
- Self-funded health plans, for most employers, are governed by the Employee Retirement Income Security Act of 1974. ERISA preempts state insurance regulations, meaning employers with self-funded medical benefits are not required to comply with state insurance laws that apply to medical benefit plan administrators. On the other hand, insured plans must comply with some of ERISA's requirements.
- Self-funded plans avoid the essential health benefits mandates of PPACA. One large insurance company in 2012 estimated that the services mandated for fully insured plans by PPACA will increase premiums from 7.5 percent to as much as 15 percent.
Because of the differences in the rules governing self-funded plans versus those governing fully insured plans, some employers who've not previously thought self-funding was a better approach to providing health care benefits are now revisiting the issue.
Size matters
The recommended minimum size for self-funding is usually 50 lives but we're able to quote groups smaller than 50 lives due to the change in the stop loss market. The best size is 50-plus. Some carriers have minimum numbers for certain plans.
There any minimum employee participation requirements for a small employer to be offered stop-loss insurance. The employer plans with low participation rates (below 75 percent) are not generally considered candidates for stop-loss coverage. Some stop-loss insurers have slightly higher or slightly lower participation thresholds, but on average, anything below 80 percent will typically not receive a stop-loss quote. If the employer is willing to complete a statement of health form or better yet, contribute to the employee only cost the participation numbers are usually met.
The stop loss amount or individual specific is generally based on the size of the employer and how much risk they are willing to take.
Stop-loss considerations
Aggregate stop-loss insurance protects the employer against high total claims for the health care plan. Any amounts paid by a specific stop-loss policy for the same plan would not count toward the aggregate attachment point.
As employers' enrollments have remained flat or have been reduced due to the current economic environment, there hasn't been a material change in the common attachment points desired by employer for both small and larger plans. The proportional use of stop-loss among various group sizes has remained consistent. In terms of overall growth, as the use of self-insurance has grown over the past two decades, the market for stop-loss insurance has expanded proportionally.
PPO networks are used for self-funded clients to control cost. The network that is the best fit for the client is usually based on geography. Most TPAs are able to work with many local and national networks.
In certain cases the carrier will quote both a “laser” and a “no-laser” option and let the client chose which they prefer. A laser is a higher specific on one individual than all other employees. An attempt is made to provide as much medical information as possible to the carrier to avoid lasers. If the group can provide complete two to three years of claims experience, including large and potential claimants, the carrier could possibly accept a standard disclosure form.
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