Partially Self-Funded Plans

I have been contemplating a move from a fully funded plan to partially self-funded plan. Research has already been done and it would be EXTREMELY cost effective for both the company and the EEs.

Anyone out there done this switch recently? Pros? Cons? We're a company of about 150.


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  • We did this very switch in 2000 and have not looked back. It is so great not to have to bid our your plan every year. Due to concern and the unknown we first set out with a $10k specific deducitble, we are at $30k now and considering going higher for 2008. We had been with United Health Care for several years and we bascially maintained the same policy that we had with UHC for the first couple of years to make the transaction easier for our ee's. We work very close with our numbers each year and so far we are extremely pleased with the results. This plan is not for everyone as you cannot do more than guess what your annual costs will be. The local school system tried this program for one year and had to go back to a fully funded plan as they operate on a very strict budget process.
    We have also gone to a self funded Dental plan and it too is saving us dollars each year.
    Good luck.
  • Do you have a TPA for claims administration? How has the risk side measured up? Our organization has talked about it, but quite frankly we're all a little too nervous to take the plunge. We have 300 employees with health insurance (fully insured) and pay close to $1 million annually for the policies. The policies are PPO type with $500 individual deductibles, some physician & hospital copay opportunities, and a 3-tier RX plan. Our claims hx runs around 70% annually, which is enough for us to see 10 to 15% rate increases annually. It's looking right now as if we will incorporate HSA and HDHP next time around, but that's about as risky as we're planning to get right now.

    I dental insurance is much lower cost, and I think much less risky. If we try self insured, I'm interested in starting with dental insurance. Anyway, I'm interest in specifics on how your company made the decision, how you make it work, and how your employees like it.

  • You definitely want a TPA for claims administration. Otherwise if you get sued it may look like you were just saving money instead of following policy. There are many TPA's out there, so be sure and do your due diligence.

    You protect yourself from unexpectedly high claims by having stop loss insurance. Specific stop loss is tied to individuals with coverage. You can set it low (say, $5,000) or high (say $250,000). So if you have an employee who gets really sick, your plan only pays the amount you set up for the deductible ($5,000 or whatever you choose).

    On the other side, you might not have anyone who hits your deductible but everyone had something wrong and many got close. To protect yourself from this scenario you buy aggregate stop loss insurance. In this case you set a limit on the total amount you paid.

    Here's an example of how it works:

    You buy specific coverage at $10,000 and aggregate coverage at $250,000 (your claims history and the amount of your deductibles will determine the rates the carrier charges). Between employees and dependents you have 100 people on your plan.

    Participant 1 has a heart attack and needs several surgeries throughout the year. By the end of April you have paid out $10,000 in claims. All of this participants claims will now go to your stop loss carrier for payment for the rest of the year.

    Participant 2 has premature twins. The claims come to $95,000 for one and $98,000 for the other. You pay $20,000 ($10,000 per child) and the stop loss carrier pays the rest.

    The claims for the rest of the participants come to $230,000.

    Participant 1 $ 10,000
    Participant 2 $ 20,000
    Others $230.000

    Total outlay $260,000. You paid the first $250,000 and the carrier paid the other $10,000. Sometimes you have to pay and get reimbursed, and sometimes you just show you have reached your deductible and the carrier takes over claim payment. This is something you want to look at when you are designing your plan.

    You must look at the maximum exposure you can afford (including administration costs) and buy stop loss insurance for the rest. Look for a carrier or broker who can combine a PPO network, Rx network, TPA administration and stop loss insurance. Work out the details until you make sure you don't spend any more than you would have with traditional insurance. You can't lose this way, you can only spend less. Next year you will have experience to help you trim costs even more.

    Good luck!

  • Great information. Many thanks for sharing, and in such clarity. You've given me enough info to feel confident in beginning some dialog and feeling like I know some intelligent questions to ask.

    Thanks to CWilson also for the added fodder.

  • We have been partially self-funded for 7 years and of those 7 years we have only had one year that experienced a loss. This type plan has saved us a tremendous amount of money. We have 100 employees with a $20,000 stop-loss per employee and 25% of our work force is over 50. We provide excellent coverage with $20 co-pays and a 3-tier drug plan with a mail order option that offers a 3 months supply for the cost of a one month supply at the local pharmacy. We have a $500.00 deductible and $2,500 max out of pocket. We have not had an increase in premiums in three years. We did have an increase of 7% the year following the loss.

    We evaluate our options each year, but always stay with the partially self-funded plan, because it works the best for us. We work closely with a benefits control company that has given us excellent advice on the plans structure and a TPA.

  • Thanks guys - we had already done the suggestions presented here about a TPA, stoploss, etc. I guess I'm looking for more information about the actual end user effects, such as:

    Were the employees happy with the change? Did they even notice a change?
    What administrative changes has this generated for you as HR director?
    If using a plan that includes case management and disease management, how involved were you in the process?
    Have you been able to achieve wellness goals through a self-funded setting?
    Anyone experimented with restricting the plans to non-smokers?
    Has anyone come to the point where they have created "compliance plans" and "noncompliance plans" in order to achieve wellness goals?

    I guess it is just a little unnerving because it is SOOO different from a traditional benefits package. I believe change is good, and I believe that self-funded plans are going to become much more prevalent in the marketplace, but I guess I'm a little afraid of taking the plunge....but I'm leaning toward it.
  • About 4-5 years ago we went self-funded. The first year the plan was written exactly to model the fully insured plan from the year before. The second year we started tweaking it. We eventually changed some coverages by increasing or decreasing allowable amounts, depending upon usage and situations. We changed deductibles, changed some Rx factors, and the max age for dependent coverage. About 14-15 years ago I was with a company who went self-funded and they did virtually the same thing. Employees don't care how thier claims are paid, as long as they are paid. They are more interested in what doctors they have to go to, co-pays, deductibles, and what is covered.

    Administratively we are more involved in plan design. We get reports about utilization and large claims (none identify participants, though you might be able to put two and two together). A good broker/agent or your TPA will help guide you with all this information while you are in your learning curve.

    Case Management and Disease Management are all part of the plan design and administration process. Once set up, you should be out of it unless someone appeals a claim all the way to the top.

    We have not used wellness goals, but expect to start soon. We are using the carrot and the stick method, but it is basically not part of the actual health plan. We are using our TPA to help us though.

    I can't help you with your other questions, but I hope this answers some of what you wanted to know.

    Good luck!

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