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The Seneca Group 866-487-4157 | www.thesenecagroup.com 1 Self-Funded Health Plans Fully insured medical plans are becoming the trend at an alarming rate. Annual premium increases of 16% to 20% are becoming commonplace. With employee benefits being the second biggest expense for an employer, what options do you have to control these costs? The Employee Retirement Income Security Act (ERISA) of 1974 exempts Self-funded plans from state insurance laws, reserve requirements, state mandated benefits, and premium taxes. Over one half (59%) of covered workers are in a self-funded health plan. Why consider self-funding your health benefits? The advantages of self-funding employee benefit plans are well-established and clear. For many years, employers have elected to self-fund their health benefits in order to: • Maintain control over plan design • Maintain cash flow control, enabling maximization of interest income • Enjoy hard dollar savings by eliminating state mandated benefits • Gain complete access to the claims utilization experience • Benefit from reduced administrative costs How does it work? Instead of purchasing a traditional, fully insured HMO, POS, or PPO plan, the employer hires a Third Party Administrator (TPA) to process employee claims. With the assistant of the TPA, the employer also chooses a provider network and reinsurance to protect from high claimants. The employer pays a fixed fee to the TPA to process the claims. The only variable costs are the actual claims costs discounted by the provider network. Frequently asked questions: Q: Will self-funding cost more than fully insured health benefits? A: Self funding should be LESS expensive than fully insured benefits because you are not paying for taxes and insurance carrier profits. Q: Is termination of a self-funded plan difficult? A: Stop-loss insurance is structured to pay for claims incurred in, but reported after, the end of each plan year. Yes, you will have to pay run out claims, but when will a fully insured carrier change you a lower premium than what has been paid in claims? Q: Is there added fiduciary and legal responsibility? A: ERISA laws that govern self-funding are less restrictive than state insurance regulations. Self Funding • Flexible plan designs. • Reduced risk through specific and aggregate stoploss insurance. • Network access through a variety of provider networks. • Self-funding through ERISA • Web-based explanation of benefits and claim look-up. • Online eligibility maintenance. • Online open enrollment. • HIPAA-secure messaging. • Document and form library. • Savings over traditional coverage. Why Self Funding? Insurance carriers retain a minimum of 15%-20% of premium to administer the plan. Typical self-funded administrative costs are just 4%. Premium-in-excess-of-claims costs are retained by the fully insured carrier as profit. Self- funded plans pay claims costs, only.
