the concepts of self-funding. 2see notice about this presentation self-funding basics self-funding...

The Concepts of Self-FundingThe Concepts of Self-Funding

2See Notice About This Presentation

Self-Funding BasicsSelf-Funding Basics

Self-FundingSelf-Funding

Employer funds/pays its own claims rather than buying traditional health insuranceEmployer funds/pays its own claims rather than buying traditional health insurance

Employer often delegates administrative responsibilities to a TPA/Insurer/HMOEmployer often delegates administrative responsibilities to a TPA/Insurer/HMO

Employer can manage its exposure to catastrophic claims expense by purchasing stop Employer can manage its exposure to catastrophic claims expense by purchasing stop loss insurance (excess risk)loss insurance (excess risk)

ERISA (Employee Retirement Income Security Act) (1974)ERISA (Employee Retirement Income Security Act) (1974)

Formally recognized Self-Funded PlansFormally recognized Self-Funded Plans

Specifically exempts most self-funded employee benefit plans from state regulation, Specifically exempts most self-funded employee benefit plans from state regulation, including mandated benefitsincluding mandated benefits


Alternative FinancingAlternative Financing

Who Assumes the Risk?Who Assumes the Risk?Who Assumes the Risk?Who Assumes the Risk?

Fully- Fully- Insured Insured PlansPlans

Retrospective Retrospective Premium Premium

AgreementsAgreements

Minimum Minimum Premium Premium AccountsAccounts

Self-Funded Self-Funded ASO w/Stop ASO w/Stop

Loss InsuranceLoss Insurance

Pure Self-Pure Self-Funding Funding (ASO)(ASO)

100% Transfer of Risk100% Transfer of Risk No Transfer of RiskNo Transfer of Risk


Self-Funding Advantages for an EmployerSelf-Funding Advantages for an Employer

Group Controls the plan, not the insurerGroup Controls the plan, not the insurer

Group can take advantage of their own good medical experienceGroup can take advantage of their own good medical experience

-- Can Result in more effective healthcare cost controlCan Result in more effective healthcare cost control

Employer can be very flexible in health plan designEmployer can be very flexible in health plan design

-- ERISA applies, often in lieu of state-mandated minimum benefit levels, easing ERISA applies, often in lieu of state-mandated minimum benefit levels, easing administration of multi-state plansadministration of multi-state plans


Self-Funding Advantages for an EmployerSelf-Funding Advantages for an Employer

• May help employers cash flowMay help employers cash flow

- - Pay claims as incurred – no pre-funding or up-front reserve paymentsPay claims as incurred – no pre-funding or up-front reserve payments

- Reserves held by employer instead of insurance carrier. Interest paid on these Reserves held by employer instead of insurance carrier. Interest paid on these reserves also remains with the employerreserves also remains with the employer

• Essentially creates a not for profit health plan since it eliminates most risk Essentially creates a not for profit health plan since it eliminates most risk charges and profit margins charged by insurers and the employer cannot charges and profit margins charged by insurers and the employer cannot export annual “surplus” into company PNL export annual “surplus” into company PNL

• Employer may purchase stop loss to reduce its exposure to losses due to Employer may purchase stop loss to reduce its exposure to losses due to catastrophic claims and create more predictabilitycatastrophic claims and create more predictability


Self-Funding Considerations for an EmployerSelf-Funding Considerations for an Employer

• Risk Assumption / Risk AversionRisk Assumption / Risk Aversion

• Cash FlowCash Flow

• Unpredictably Poor ExperienceUnpredictably Poor Experience

• Assets ExposureAssets Exposure

-- General Asset PlanGeneral Asset Plan

-- 501 (c) (9) Trust Account501 (c) (9) Trust Account

• Fiduciary ResponsibilityFiduciary Responsibility

• Risk SuitabilityRisk Suitability


Risk SuitabilityRisk Suitability

What type of claims to fully-insure?What type of claims to fully-insure?

Unpredictable: Unpredictable: low frequency, high severitylow frequency, high severity

ExamplesExamples

Life / AD&DLife / AD&D

Long Term DisabilityLong Term Disability

What type of claims to self-fund?What type of claims to self-fund?

Predictable: Predictable: low severity, high frequencylow severity, high frequency

ExamplesExamples

MedicalMedical

DentalDental

VisionVision


Who is Insured?Who is Insured?

Employer / Plan SponsorEmployer / Plan Sponsor

• The employer has made a promise to provide benefitsThe employer has made a promise to provide benefits

• Existence or absence of stop loss does not change that promiseExistence or absence of stop loss does not change that promise

The individual / participant is NOT the insuredThe individual / participant is NOT the insured

• Stop Loss reimburses the employer / plan sponsor for any claims the plan has paid over Stop Loss reimburses the employer / plan sponsor for any claims the plan has paid over the stop loss deductiblethe stop loss deductible

* Stop loss policy reimburses * Stop loss policy reimburses employer for catastrophic losses associated with providing health for catastrophic losses associated with providing health benefits to employees and dependents. Stop loss cannot pay providers or employees of the employer.benefits to employees and dependents. Stop loss cannot pay providers or employees of the employer.


Who is Insured?Who is Insured?

Fully-InsuredFully-Insured

EmployeeEmployee

Insurance Insurance CompanyCompany

EmployerEmployer

Self-FundedSelf-Funded

EmployeeEmployee

Self-Funded Self-Funded PlanPlan

EmployerEmployer

Stop LossStop Loss


Specific (Individual) CoverageSpecific (Individual) Coverage

• Reduces the employer’s exposure to high-cost individualsReduces the employer’s exposure to high-cost individuals

• Employer pays all claims for each individualEmployer pays all claims for each individual

• Stop loss carrier reimburses the employer for claims on individuals whose Stop loss carrier reimburses the employer for claims on individuals whose annual eligible* expense has exceeded the specific deductible annual eligible* expense has exceeded the specific deductible

• At each contract renewal, each individual will be subject to a new specific At each contract renewal, each individual will be subject to a new specific deductibledeductible

* Note: Eligible and reimbursable expenses under the terms of the stop loss policy may * Note: Eligible and reimbursable expenses under the terms of the stop loss policy may differ from the employer’s plan document.differ from the employer’s plan document.


Aggregate CoverageAggregate Coverage

• Aggregate coverage is offered at 125% of the expected claimsAggregate coverage is offered at 125% of the expected claims

• Aggregate coverage can also cover Rx, Dental and Vision claimsAggregate coverage can also cover Rx, Dental and Vision claims

• Aggregate coverage will not be sold aloneAggregate coverage will not be sold alone

- Aggregate coverage does not provide “catastrophic” coverageAggregate coverage does not provide “catastrophic” coverage

- Specific “protects” the AggregateSpecific “protects” the Aggregate


Self-Funded / Stop Loss Cost DefinedSelf-Funded / Stop Loss Cost Defined

Fixed CostsFixed Costs

- Specific Premium- Specific Premium

- Aggregate Premium- Aggregate Premium

- Administration Fees – TPA, PPO Network, UR, etc.- Administration Fees – TPA, PPO Network, UR, etc.

Variable CostsVariable Costs

- Expected Claims- Expected Claims

Total CostTotal Cost

- Fixed - Fixed

- Variable- Variable

Maximum CostMaximum Cost

- Fixed- Fixed

- Attachment Point (Expected plus Corridor)- Attachment Point (Expected plus Corridor)


Two Important DefinitionsTwo Important Definitions

IncurredIncurred

The date on which medical care or a service or supply is provided to a covered person for plan The date on which medical care or a service or supply is provided to a covered person for plan benefits under the employee benefit plan for which a charge resultsbenefits under the employee benefit plan for which a charge results

PaidPaid

Charges that, as of the dates shown in the contract basis, are:Charges that, as of the dates shown in the contract basis, are:

1.1. Covered and payable under your employee benefit plan, and Covered and payable under your employee benefit plan, and

2.2. Have been adjudicated and approved, andHave been adjudicated and approved, and

3.3. A check or draft for remuneration is issued and deposited in the U.S. mail, or other similar A check or draft for remuneration is issued and deposited in the U.S. mail, or other similar conveyance or is otherwise delivered to the payee, andconveyance or is otherwise delivered to the payee, and

4.4. Sufficient funds are on deposit the date the check or draft is issuedSufficient funds are on deposit the date the check or draft is issued


Incurred ContractIncurred Contract

1/1/091/1/09 12/31/0912/31/09

Incurred (date service was rendered)Incurred (date service was rendered)

Paid (date claim paid by administrator)Paid (date claim paid by administrator)

Incurred Incurred - To be eligible under the - To be eligible under the specificspecific, the claim must be incurred in , the claim must be incurred in the contract period. There are no time requirements for when the claim is the contract period. There are no time requirements for when the claim is paid. However, a claim notice must be submitted within 12 months after the paid. However, a claim notice must be submitted within 12 months after the policy period. For renewal years, the specific contract will remain an policy period. For renewal years, the specific contract will remain an incurred contract.incurred contract.

Appropriate if group is currently fully-insured or has run out protection with Appropriate if group is currently fully-insured or has run out protection with current stop loss carrier.current stop loss carrier.


12/15 Contract12/15 Contract

1/1/091/1/09 12/31/0912/31/09 3/31/103/31/10

Incurred (date services was rendered)Incurred (date services was rendered)


Incurred in 12 and Paid in 15 (12/15)Incurred in 12 and Paid in 15 (12/15) - Eligible claims must be incurred during the - Eligible claims must be incurred during the contract period and paid within the contract period or the three months immediately contract period and paid within the contract period or the three months immediately following. following.

This is an abbreviated version of the “true incurred” contract.This is an abbreviated version of the “true incurred” contract.

Variations include 12/18 and 12/24 contracts.Variations include 12/18 and 12/24 contracts.


12/12 Contract12/12 Contract

1/1/091/1/09 12/31/0912/31/09


Incurred date service was rendered)Incurred date service was rendered)

Incurred and Paid (12/12)Incurred and Paid (12/12) - - Eligible claims must be incurred Eligible claims must be incurred andand paid paid within the policy year. For renewal years, the contract will convert to a paid within the policy year. For renewal years, the contract will convert to a paid contract and the claims will be eligible under the renewal contract contract and the claims will be eligible under the renewal contract regardless of the date incurred, as long as it was incurred on or after the regardless of the date incurred, as long as it was incurred on or after the initial effective date of the contract. initial effective date of the contract.

This is an appropriate first-year contract type for a group that is currently This is an appropriate first-year contract type for a group that is currently fully-insured or a group that is self-funded and the policy has a run-out fully-insured or a group that is self-funded and the policy has a run-out provision.provision.


Paid ContractPaid Contract

1/1/091/1/09 12/31/0912/31/09

Incurred (date service was rendered)Incurred (date service was rendered)


PaidPaid - On renewal, a 12/12 or 15/12 contract becomes a paid contract. Claims will be - On renewal, a 12/12 or 15/12 contract becomes a paid contract. Claims will be eligible under the renewal contract regardless of the date incurred, as long as it was eligible under the renewal contract regardless of the date incurred, as long as it was incurred on or after the initial effective date of the stop loss policy. incurred on or after the initial effective date of the stop loss policy.

This is appropriate for renewal contracts that started out as 12/12 or 15/12 contracts.This is appropriate for renewal contracts that started out as 12/12 or 15/12 contracts.


PPACA Effects on Self-FundedPPACA Effects on Self-Funded

• Prohibited use of pre-existing condition exclusions on dependent children Prohibited use of pre-existing condition exclusions on dependent children under the age of 19under the age of 19

• Prohibition of cost sharing on preventive services and immunizations Prohibition of cost sharing on preventive services and immunizations (unless Grandfathered)(unless Grandfathered)

• Requirements of coverage for emergency services without pre-Requirements of coverage for emergency services without pre-authorizationauthorization

• Prohibition on plans from requiring authorization or referral for patients Prohibition on plans from requiring authorization or referral for patients seeking OB/GYN services seeking OB/GYN services (unless Grandfathered)(unless Grandfathered)

• Extension of coverage for dependents up to 26 years of age Extension of coverage for dependents up to 26 years of age


PPACA Effects on Self-Funded PlansPPACA Effects on Self-Funded Plans

Renewal / Start DatesRenewal / Start Dates

September 23, 2010September 23, 2010



January 1, 2014January 1, 2014

Permitted Annual MaximumsPermitted Annual Maximums

$ 750,000$ 750,000

$ 1,250,000$ 1,250,000

$ 2,000,000$ 2,000,000

No Annual Maximum PermittedNo Annual Maximum Permitted


Small Group Impacts on Self-Funded PlansSmall Group Impacts on Self-Funded Plans

• Current Definition of under 50 employee lives Current Definition of under 50 employee lives

• 60A.236 stop loss law; small employer coverage:60A.236 stop loss law; small employer coverage:

- - A contract providing stop loss coverage, issued or renewed to a small A contract providing stop loss coverage, issued or renewed to a small employer, as defined in section 62L.02, subdivision 26, or to a plan employer, as defined in section 62L.02, subdivision 26, or to a plan sponsored by a small employer, must include a claim settlement period no sponsored by a small employer, must include a claim settlement period no less favorable to the small employer or plan that coverage of all claims less favorable to the small employer or plan that coverage of all claims incurred during the contract period regardless of when the claims are paidincurred during the contract period regardless of when the claims are paid

• Stop loss carriers make coverage available on multiple contracts Stop loss carriers make coverage available on multiple contracts basis and the purchaser makes the determination of which type of basis and the purchaser makes the determination of which type of coverage they desirecoverage they desire


• In Minnesota today, self-funded plans with fewer than 50 employees In Minnesota today, self-funded plans with fewer than 50 employees are “incurred” stop loss contractsare “incurred” stop loss contracts

• Most self-funded plans (over 50 employees) purchase stop loss on Most self-funded plans (over 50 employees) purchase stop loss on “run-in” basis rather than a “run-out” basis, if coming from another “run-in” basis rather than a “run-out” basis, if coming from another stop loss contractstop loss contract

• For many years now self-funded products have been available to For many years now self-funded products have been available to employers with fewer than 50 lives. As a TPA and carrier, we have not employers with fewer than 50 lives. As a TPA and carrier, we have not seen any “back and forth” migration into or from fully-insured small seen any “back and forth” migration into or from fully-insured small group plans group plans

• Self-funding verses fully insured fits certain employers conceptually Self-funding verses fully insured fits certain employers conceptually but not all. Moving the small group size limit to 100 would not change but not all. Moving the small group size limit to 100 would not change this current philosophy this current philosophy




MN Proposed ChangesMN Proposed Changes

• The current Minnesota small group law forces stop loss carriers to load additional The current Minnesota small group law forces stop loss carriers to load additional costs into “run-in” contracts to cover the laws “run out” requirementcosts into “run-in” contracts to cover the laws “run out” requirement

• If expanded to 100 lives and under, then a material population will be forced to If expanded to 100 lives and under, then a material population will be forced to purchase a product that provides both “run in” and “run out” coveragepurchase a product that provides both “run in” and “run out” coverage

• We think the additional premium we would charge for such additional coverage We think the additional premium we would charge for such additional coverage would be 7-10% on averagewould be 7-10% on average

Potential ways to mitigate additional costs for self-funded employersPotential ways to mitigate additional costs for self-funded employers

• Allow a waiver on the application for the plan that is on a “run in” basis to decide if Allow a waiver on the application for the plan that is on a “run in” basis to decide if they want the additional “run out” coverage (samples can be provided for review)they want the additional “run out” coverage (samples can be provided for review)

• Have the stop loss statute continue to apply to groups under 50 livesHave the stop loss statute continue to apply to groups under 50 lives

• Have the stop loss statute only apply to plans that do not meet the minimum spec Have the stop loss statute only apply to plans that do not meet the minimum spec and aggregate requirements (60A.235, subdivision 2&3)and aggregate requirements (60A.235, subdivision 2&3)

QUESTIONS?QUESTIONS?

the concepts of self-funding. 2see notice about this presentation self-funding basics self-funding...

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employer plan sponsor

stop loss deductiblestop

tpainsurerhmo employer

benefitsthe employer

insured stop loss

stop loss policy

individual stop loss