Partial Self-Insured PlansWe Work For You
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Partial Self-Insured Plans |
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On This Page: How it Works Who does it fit? The TPA Costs Risks Getting Started |
We have been told that finding information concerning Partial Self- Insured Plans for small groups
is very difficult. Therefore we are devoting a special page to this topic.
In fact, we are very flattered that we have been complimented by large companies as far away as Texas and Arizona, that have told us we have the best treatment of the topic they can find on the entire Internet! |
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Let's start by coordinating our terminology. This style of strategy may be referred to as Self Funded, Partially Self Funded, Self Insured, Partially Funded, etc. As the cost of employee benefits has continued to rise, employers have invoked various tactics in an attempt to keep expenses within some limits. Employee benefits cost as much as 33% of payroll, with health benefits being one of the most expensive of the package. The health premiums alone for just a group of 50 employees can easily exceed $300,000 per year. Managed care helped reduce the costs of previous traditional full indemnity plans, but now even those premiums are soaring. Requiring employees to share in premium costs is a limited strategy and makes but a small dent in the overall cost. A traditional health plan premium is comprised of several general cost drivers:
Premiums are determined by experience factors, industry, and group demographics. Companies with generally healthy statistics actually subsidize companies with bad years or worse, bad histories. Furthermore, the actual act of shopping for the best plan and most competitive premiums is a time consuming and costly procedure, often taking months to complete. Employers began to realize that if they could gain some control over administration and contribution costs, their own premiums could be better managed. The other factor was that if their group had a positive experience rating, they should be able to gain more favorable rates. This realization spawned a whole new strategy for providing health care benefits.
1. A Benefits Plan Design and expenses budget 2. A Third Party Administrator (TPA) 3. A Reinsurer Once an employer determines that they want to partially self-insure, they will decide what benefits they want included in their plan. Then they will select a TPA to help manage the plan and handle all the claims. The TPA will put the plan out to bid to Reinsurers who protect the employer from benefits costs, which exceed the budget. The TPA will prepare all the administration kits and enrollment documents and assist during the open enrollment period. Once the plan is in place, the employer will set up a fund with the TPA. Employee claims will be paid by the TPA out of the fund. The TPA will provide monthly reports to the employer. If any individual claim exceeds a predetermined level (cap) or, if the total company claims (aggregate) exceed a predetermined cap, the Reinsurer steps in. This limits the direct expenses of the employer. Who Does it Fit? The group needs to be of sufficient size so that one shock claim doesn't upend the whole plan. Insurance is based on the law of large numbers, and a group with fewer than 30 employees is subject to shock-claim risk. A shock claim is one with very high costs, such as cancer treatment and recovery. The rule of thumb is that at 30-49 employees, the group should at least look at this possibility. From 50 - 99 employees, it may be feasible, and at 100+ employees, it is more likely to be an advantage. What is the Role of the TPA ? The TPA is the key party and provides a wealth of services to the
employer including: · Helping to develop the plan design · Shopping for the best Reinsurer · Enrollment services · Claims resolution · Loss and expense reports · Section 125 documentation
The Employer pays all claims to the stop-loss limits, (caps) The Employer pays a premium to the Reinsurer to be the safety net in the event claims exceed the budget. This premium is typically just a fraction of a normal premium, because the employer is bearing the bulk of the risk. The Reinsurer will bid for their part of the plan on the basis of the client's claims history. The better the history is, the lower the premiums become. Furthermore, as a good health history develops, the stop-loss caps will recede, thus reducing the employer's out-of-pocket risk. In general, the risks are far less than one would first imagine. This of course depends on the plan design the employer works out with the TPA. However, with a little background, the employer can learn what to ask for to minimize any undue exposure. There are some companies now specializing in partial-self insured plans to small groups. However, so far, major cost savings have been difficult to ascertain, because the claims loss risk is higher with small groups. First of all, in the first year of self-insuring, and assuming a reasonable previous year's health claims history, the total plan potential cost would be expected to be equal to or slightly less than the premiums paid to a traditional plan the year before. However, history shows that actual costs at year-end typically run to 25% less than expected. With a good first year under their belt, the employer can expect lower costs in the subsequent year. Another concern, but one which is of no real consequence, is whether the employees will support the change. Since the employer designs the benefits package, they have total control over what is and is not provided. This is far more control incidentally than they have over traditional plans. Furthermore, the employer can determine which network, if any, they wish to use. For example, in New England, it is common for such plans to utilize HCVM or PHCS the two largest PPO networks in New England. The employer will minimize their risks by insisting that the final plan design includes the following:
· Stop Loss Cap for the aggregate · Guaranteed level funding (to protect against cash flow spikes) · Minimum three month run-out (TPA payment of claims that are submitted after the plan year ends) · Ability to alter plan benefits and/or limits at any time during the plan year The Selected TPA should:
· Bid out to many Reinsurers. · Have a large number of cases for negotiating clout with Reinsurers · Demonstrate an excellent claims management record The employer will be well served by a broker who will locate and present one or more TPAs for consideration. This will save the employer a tremendous amount of time and actually reduces their costs for the process. At McBriarty, we have relationships with the four primary TPAs in New England plus a number of traditional carriers who offer partial self-funded options. We understand how this market works, will assist in the employer's selection process, and will insure the best comparisons for subsequent years' plans. |
