Presented by

Ryan Jackson

Sara Hames, CEBS

Executive Review:

Self-Funded vs. Fully Insured

Health Plans in the PPACA era

Dave Hazen, CFO - Racine Unified School District

Julie Kelly, Director of Business Services – Muskego-Norway School District (formerly with St. Francis School District)

Sara Hames, CEBS – Consultant, Hays Companies

Ryan Jackson – Director, Hays Companies

Introduction

Fully Insured versus Self Funded

Self-Funded Basics ◦ Stop Loss

◦ Claims Reports

◦ Cash Flow

◦ Reserves, Surpluses, Deficits

◦ Data

Sample Analysis/Projection

PPACA’s influence

55% of all employees covered through their employer are in self funded plans

Overall trend by small and midsize employers - under 200 EE's - to self fund (UBA Advisors) ◦ UBA Employer Opinion Survey (2-200 EE's) 17.5%

currently self fund 12% are likely to implement ◦ Current self funded by industry

Government/Education/Utilities: 20.7% Wholesale/Retail: 11.6% Manufacturing: 11.3% Finance/Insurance/Real Estate: 9.2% Health Care/Social Assistance: 8.7%

◦ Kaiser Family Foundation (2-199 EE's) 16% of companies self fund in 2010 - was 12% in 2008.

Fully Insured Plan: An insurance arrangement in which the employer

contracts with a health plan that assumes financial responsibility for the

costs of enrollees’ medical claims and administration.

Self-Funded Plan: An arrangement in which the employer assumes

direct financial responsibility for the costs of enrollees’ medical claims.

Employers sponsoring self-funded plans typically contract with a third-party

administrator or insurer to provide administrative services for the self-

funded plan. In most cases, the employer may buy stop-loss coverage

from an insurer to protect the employer against very large claims.

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Transference of Risk ◦ Stop loss is a form of reinsurance that employers buy to limit their losses

when self-funding their health care plan.

Aggregate: Insures against total claims exceeding an estimated dollar amount plus a margin during a plan year. It can include a monthly accommodation

Specific: Insures against a single high cost claimant that exceeds a dollar limit, i.e. $40,000 for a plan year

Laser: A risk sharing contract feature on individual stop loss contracts. The employer shares in additional risk for an ongoing, high cost claim. For example:

Specific stop loss is $50,000

One ongoing high cost claim within group. Stop loss carrier sets the laser at $250,000

Employer has an additional risk of $200,000 (or total risk of $250,000) for the ongoing, high cost person

Terminal Liability: Provides 3 to 6 months of run-out protection when stop loss policy terminates

Contract Liability: Defines what incurred and paid dates are covered under the policy: 12/12, 15/12, 24/12, 12/15, 12/18, etc.

Fully Insured Self-Funded

Subject to state mandates?

Yes Generally No

IBNR Held by carrier Held by District

Participation in current year experience?

No unless a ‘retro’ or ‘performance reward’ is offered

Yes

Bundled or Unbundled Components

Bundled Only Can be either

Margin and premium taxes?

Yes; it’s built into the premium

Margin is optional Taxes are eliminated

Plan Design Flexibility Limited by Carrier Flexible and customizable

Budget? Set by Carrier Set by District but can vary from month to month

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Advantages

Level premium regardless of “poor” claims experience for that year

Easy to switch carriers as reserves are included in the premium paid

Easy to budget on an annual basis

Administration usually more simplified (depending on number of locations)

Disadvantages

Level premium regardless of “good” claims experience for that year

Subject to state mandates which may make plan more expensive

Multi-state employers have different plan designs by state

Bundled and thus unable to interchange “broken” parts (administration, network, etc.)

Must pay premium, taxes, and margin on top of administrative and claim expenses

Less plan design flexibility Limited data available

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Advantages Disadvantages

Generally lower cost of operation

Able to unbundle and seek least expensive/best service for each component

Uniform plan designs nationally

Better cash flow as hold own reserves

No margin or premium taxes

Able to take advantage of “good” experience within plan year

More plan design flexibility

Employer can choose how much risk they can tolerate

Claims may exceed expected level in a “poor” experience period and may exceed budget if budgeted at “expected” level.

Costs may vary widely from month to month

Employer may ultimately be the “final say” for claims appeals, putting the plan administrator in a sometimes uncomfortable position

258 Employees, $1500 Deductible, Insured Premium of $12,473 PEPY

2009 Changed to Self-Funded, $750 Deductible ◦ 1st year cost = $7,736

◦ 2nd year cost = $8,091

◦ 3rd year cost = $9,099

◦ 4th year projected cost = $9,863

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ABC School DistrictSelf Funded Analysis

Specific Level: $50,000

7/2010 - 6/2011 7/2011 - 6/2012

Average enrollment 414 403

Incurred Claims $6,095,314 $6,327,815

Less Excess Claims over $50,000 $925,879 $796,604

Adjusted Incurred Claims $5,169,435 $5,531,211

Estimated Administration Fee $173,880 $178,194

Estimated Stop Loss $50,000* $621,000 $745,201

Estimated Aggregate Stop Loss $24,840 $26,278

Total Self Funded Plan Cost $5,989,155 $6,480,884

Fully Insured Premium paid $6,215,978 $6,837,576

Estimated Savings - Self Funding $226,823 $356,692

Savings % 3.6% 5.2%

* Stop loss premium excludes Medicare retirees.

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Access to more robust utilization data Wellness programs can help to reduce rates/costs

directly and immediately Offer the same uniform health plan in multiple states Not required to offer tailored benefits to each state

dependent upon the existing state mandates Flexibility in coverage denials Self funded plans determine their own plan designs

(must follow certain federal guidelines) Avoid or reduce premium taxes. Administration fees

are approximately 6-15% of total premium: retention is significantly reduced

Many TPAs/stop loss carriers have stared targeting small-midsized employers with products for as few as 25 employees

A robust data tool can answer many critical questions, including: ◦ How much are we paying for

health care?

◦ How much are other companies paying?

◦ Which areas within our plan are most costly?

◦ How efficient is our plan design?

◦ How much does chronic disease cost?

◦ Are members getting their recommended preventive care

It should have the ability to,

◦ Drill-down into specific areas uncovering hidden problems and opportunities

◦ Predict the impact of changes in plan design & value

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Prohibit Discrimination in favor of highly compensated

Requires reporting of medical loss ratio (MLR) and provision of rebates

Annual Rate Review Impose community rating rules Requires coverage for Essential Benefits

Self-Insured Plans Are Not Subject to the Jurisdiction of State Ombudsmen48 – PPACA provides for the creation of a state-level office for an “Ombudsman.”

Fully insured plans below 50* lives must community rate oNo health underwriting adjustments oDisadvantage to healthy groups

Rates may only vary based on the following: oAge – no more than 3 to 1 ratio oTobacco use - no more than 1.5 to 1 ratio o Self or family coverage oRegion

Deductibles may not exceed $2000 Single/$4000 Family

*State may re-define this

Avoid one of the largest Taxes/Assessments:

◦ Health Insurance Tax (HIT):

Approx. 1-2.3% of Premium $30,000 to $69,000 on $3,000,000 in annual premium

Retain ability to keep high deductibles

Avoid the estimated “loads” of 15% to 50% from insurers for taxes and new product designs

Ensure stop loss and TPA’s are the best fit for the District

Provide Actuarial and Underwriting services

Select best provider network(s): access and discounts

Detailed Claims Reporting ◦ Demographic analysis ◦ Member illness burden analysis ◦ Preventive care compliance ◦ Identify greatest risks ◦ Customized wellness programs ◦ Targeted member communication