There is a world of insurance options available for employers. With the changing face of health care due to the passing of the Patient Protection and Affordable Care Act, and with the ever-rising cost of health care, employers are looking for new ways to provide health insurance to employees.
Self-funded health care is one way employers are taking control over premium expenses and vendor fees. According to Wikipedia, self-funded health care is a self-insurance arrangement whereby an employer provides health or disability benefits to employees with its own funds. This is different from fully insured plans where the employer contracts with an insurance company to cover the employees and dependents.
When choosing a self-funded health care plan, an employer is able to purchase excess insurance coverage called employer stop-loss coverage. This coverage helps protect employers from extreme utilization levels and claims. When obtaining employer stop-loss coverage, employers may need to provide the following to an insurer:
- A census of covered employees (noting age, gender, dependent status and location)
- Claim history, with two years of group-level history and two years of individual catastrophic claims history.
- Current and proposed plan of benefits
The passing of the Patient Protection and Affordable Care Act (PPACA) also affects employers choosing self-funded health care. As with any updates in health care offerings, there are pros and cons under the PPACA to offering self-funded health care:
Avoidance of State Requirements
Self-funded plans are not subject to state-mandated benefits – only federal mandates. The exception to this rule is government or church plans where mandates and other state rules may apply. Federal taxes and state premium taxes are also avoided by having a self-funded health care plan.
With self-funded plans, the lower the current costs, the less overall impact on the plan over time. Self-funded employers can adapt their targeted cost containment with additions like wellness programs.
Avoid Higher Inflation
Fixed and variable costs for self-funded plans are expected to stay lower than premiums for fully-insured plans. Self-funded employers can look for more attractive self-funded options driven by carrier interest as carriers favor self insurance as it limites their overall exposure to the medical loss ratio.
Self-funded plan sponsors and participants won’t enjoy some of the protective features of the new PPACA law including the reform law obligation to renew all current insurance policies each year, the guaranteed issue rule and the federal and state premium oversight health reform rules. Note: stop-loss carriers and reinsurers are not subject to these laws or regulations.
For more information on self-funded health care plans and its relationship to the PPACA, visit SHRM and HUBInternational. To discuss your health care options and to get help navigating the ever-changing world of health care for your business, please visit Kare360.