self-funding for the mid-sized employer: can it save your company time, money and resources?
TRANSCRIPT
Self-Funding for the Mid-Sized Employer: Can It Save Your Company Time, Money and Resources?
A CBIZ Benefits & Insurance Services Program
Cole HarrisCBIZ Employee Services OrganizationVice President of Sales & Marketing, Tennessee
Self-Funding for the Mid-Sized Employer2
Your Presenter
Points to Cover
Alternative Funded Plans
Fully Insured vs. Self-Funded Plans
Self-Funded Plan Components
Best Practices to Prepare for a Successful Self-Funded Experience
Risk and Rewards
Self-Funding for the Mid-Sized Employer3
ALT
ERN
ATIV
E FU
ND
ED P
LAN
S
4
High-deductible fully insured premium plan and self-fund to a lower deductible Health Reimbursement Account
(HRA) “Level-Funded” Programs
Legally, a self-insured plan, but looks like fully insured
Pay “conventional equivalent” rates each month
Year-end accounting for potential “dividend”
Attractive to employer concerned with budgeting issue of self-funding
“Minimum-Premium” Programs Legally, a fully insured plan, but
looks like self-funded Immediate savings with claims Risk ceiling
Self-Funding for the Mid-Sized Employer
FULL
Y IN
SUR
ED V
ERSU
S SE
LF-F
UN
DED
5
• Employer pays fixed monthly premium to the carrier
• Carrier provides set of administrative services
Network of Providers
Claims Adjudication
Member Eligibility
Utilization Management Reports
Disease Management Programs
Rx Network and Formulary
Wellness and Other Online Tools
Some Affordable Care Act (ACA)
Reporting Requirements
Fully Insured Model
Self-Funding for the Mid-Sized Employer
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• Carrier takes 100% of the claims risk
If claims run good, carrier makes profit
If claims run poorly, carrier loses money
• Plans are state-filed, so there is limited flexibility in plan
provisions
• Premiums also include risk charge and profit margin
• Carrier pays taxes
State premium taxes included
• Carrier controls the plan
• Carrier retains pharmacy rebates
Fully Insured Model
FULL
Y IN
SUR
ED V
ERSU
S SE
LF-F
UN
DED
Self-Funding for the Mid-Sized Employer
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• Employer pays fixed monthly cost to vendors to perform specific function for
its plan
State insurance taxes are not applicable
Third Party Administrator (TPA):
o Claims Adjudication
o Member Eligibility
o Utilization Management Reports
o Customer Service
Stop-Loss Reinsurance
o Specific stop-loss coverage protects employer from any single
catastrophic claim
» This amount is set based on group size and risk tolerance
o Aggregate stop-loss protects employer from an overall bad claims year
as a group
» This is usually assumed at 125% of “expected” claim cost
Self-Funded Model
FULL
Y IN
SUR
ED V
ERSU
S SE
LF-F
UN
DED
Self-Funding for the Mid-Sized Employer
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• Rent a Network of Providers
Take advantage of network discounts
• Wellness Vendor
Provide wellness tools and assistance in setting up and tracking
wellness initiatives
• Prescription Benefits Manager (PBM)
Carve out the administration of the Rx to a third party to ensure best
discounts and management programs
Retention of rebates either split or fully received by client
• These services can either be “carved out” (unbundled) with different
vendors or “bundled” with an insurance carrier
Self-Funded Model
FULL
Y IN
SUR
ED V
ERSU
S SE
LF-F
UN
DED
Self-Funding for the Mid-Sized Employer
FULL
Y IN
SUR
ED V
ERSU
S SE
LF-F
UN
DED
Fully Insured Self -FundedEmployer pays fixed monthly premium to the carrier Employer pays fixed monthly cost to vendors to perform specific
function for its plan
Carrier provides set of administrative services:• Network of Providers• Claims Adjudication• Member Eligibility • Utilization Management Reports• Disease Management Programs• Rx Network and Formulary • Wellness and Other Online Tools• Some ACA Reporting Requirements
Third Party Administrator (TPA):• Claims Adjudication• Member Eligibility • Utilization Management Reports• Customer Service
Additional services can either be “carved out” (unbundled) with different vendors or “bundled” with an insurance carrier• Rent Network of Providers: Evaluate Network Discounts• Prescription Benefits Manager (PBM): Carve out the
administration of the Rx to a third party to ensure best discounts and management programs
• Wellness Vendor: Provide wellness tools and assistance in setting up and tracking wellness initiatives
Carrier takes 100% of the claims risk:• If claims run good, carrier makes profit• If claims run poorly, carrier loses money
Premiums also include risk charge and profit margin
Carrier pays taxes
Employer assumes risk, may determine degree of risk assumed through purchase of stop-loss reinsurance• Specific stop-loss coverage protects employer from any single
catastrophic claim**This amount is set based on group size and risk tolerance• Aggregate stop loss protects employer from an overall bad
claims year as a group****This is usually assumed at 125% of “expected” claim cost
Carrier controls the plan Employer Guarantees Benefits
Plans are state-filed, so there is limited flexibility in plan provisions Plan-design flexibility limited to TPA capabilities to administer
9 Self-funding for the Mid-Sized Employer
HO
W IS
IT P
AID
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Fixed Cost
Paid to TPA or carrier on a “per employee per month” (PEPM) basis
Typically includes administration fee, stop-loss premium, network rental and commissions
Claims Cost
Bank account or transfer of payment system is set up between employer and TPA
Employer receives weekly invoice of claims utilization and pays invoice for claims accordingly
Claims Cost
Bank account or transfer of payment system is set up between employer and TPA
Employer receives weekly invoice of claims utilization and pays invoice for claims accordingly
Self-Funding for the Mid-Sized Employer
PR
EPA
RAT
ION
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Overall claims cost PEPM Trending year over year – 6%? 15%? Large-claim risks Rx utilization Cost drivers Diabetes? Musculoskeletal? Neoplasms? Emergency room? Difficult to obtain if under 100 employees
Obtain and analyze claims data to get a grasp of your company’s utilization patterns
Self-Funding for the Mid-Sized Employer
PR
EPA
RAT
ION
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• Obtain proposals from marketplace for self-funding from vendors
• Compare cost of fully insured premium to fixed costs of self-funding
The difference between these two amounts will be the amount of money the employer can spend on claims to determine financial risk on being self-funded
The difference between these two amounts will be the amount of money the employer can spend on claims to determine financial risk on being self-funded
Self-Funding for the Mid-Sized Employer
PLA
N O
PTI
ON
SA
MP
LE -
150
EMP
LOYE
ES
Compare the $500 PEPM to the actual claims based on your analysis to see if it’s a good risk financially
Many factors to consider, such as trending, large claims over specific stop loss (SSL), ACA fees, etc…
Must have a good consultant to assist in this analysis!
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Plan Cost
Fully Insured Monthly Premium• Premium
$105,000• $700 PEPM
Self-Funded Fixed Cost (Carrier) • Administration• Specific Stop Loss With a
$75,000 Deductible • Aggregate Stop Loss at 125% of
Expected Cost • Total Fixed Cost
$50$140
$10
$200 PEPM
$700 - $200 $500 difference to pay claims
Self-Funding for the Mid-Sized Employer
CO
MP
ON
ENTS
FO
R S
UC
CES
S
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Long-Term Cost Containment
Employee Wellbeing Wellbeing focus
Physical, Financial, Social, Community, Purpose Population Health Programs Large Case Management Chronic Conditions – Outreach for Gaps in Care Lifestyle Coaching
Wise Health Care Consumerism – Multi-Year Strategy Value-Based Plans – Pharmacy Encourage members to choose plans that lead to
informed and effective health care choices Defined contribution strategy
Long-Term Cost Containment
Employee Wellbeing Wellbeing focus
Physical, Financial, Social, Community, Purpose Population Health Programs Large Case Management Chronic Conditions – Outreach for Gaps in Care Lifestyle Coaching
Wise Health Care Consumerism – Multi-Year Strategy Value-Based Plans – Pharmacy Encourage members to choose plans that lead to
informed and effective health care choices Defined contribution strategy
Wellbeing Strategy
Self-Funding for the Mid-Sized Employer
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CO
MP
ON
ENTS
FO
R S
UC
CES
S
Provide members with information to make wise decisions regarding their health care Cost-Estimator Tools Emergency Room Cost Versus Urgent
Care Generic Rx Versus Brand Rx Why Health Care Costs Increasing Advocates of Their Own Health Care
Educated employees are better equipped to make the most cost-effective decisions regarding their provider choices
Education and Communication
Self-Funding for the Mid-Sized Employer
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CO
MP
ON
ENTS
FO
R S
UC
CES
S
Employer and consultant will receive claim reports from the TPA/carrier on a monthly basis Monthly reports to be aware of general
claim utilization Quarterly and annual claims analysis to
identify trends, spikes, risks, etc… If available, annual meeting with the
carrier physician or Rx specialist
Stay on top of claims utilization patterns so there are very few surprises at renewal time
Claim Review and Analysis
Self-Funding for the Mid-Sized Employer
RIS
KS
& R
EWA
RD
S
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Claim fluctuation makes it impossible to budget monthly cost
Not funding for claims accurately can leave insurance fund in poor financial condition or claimants with unfunded claims
Added complexities due to additional vendors Employer usually has fiduciary responsibilities Greater administrative responsibilities, including HIPAA Overall financial liability is increased Increased ACA reporting requirements
Risks
Fully Insured
Fully Insured Hybrid
Self-Funded Hybrid
Self-Funded
Lower Annual Variable
Risk
Higher Annual Variable
Risk
Self-Funding for the Mid-Sized Employer
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RIS
KS
& R
EWA
RD
S
Increased plan design flexibility (exempt from state mandates)
Improved cash flow, both initially and if claims are less than expected – employer keeps the money instead of the insurance company!
Reduced retention/claim-administration costs with carriers
Do not pay for insurance company’s profit margin Currently, exempt from ACA Health Insurer Fee Exemption from state premium taxes (approx. 2%) Ability to isolate each component of the plan costs Ability to manage your own risk through wellness and
education Greater access to plan claims data
Rewards
Self-Funding for the Mid-Sized Employer
AD
DIT
ION
AL
CO
NSI
DER
ATIO
NS
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Set specific stop-loss deductible and contract parameters at the appropriate level, based on claims and risk tolerance What is employer’s risk tolerance and cash flow? Can you
accept liability for each claim to $50,000? $75,000? (higher is cheaper)
Must be sure contract provisions provide coverage so that no claim “falls through the cracks”• 12/12 - Covers claims incurred in 12 months and paid in
same 12 months• 12/15 - Covers claims incurred in 12 months and paid in
15 month (run-out)• 15/12 - Covers claims incurred in 15 months and paid in
12 months (run-in)
Be aware of “reserve” liability Run-out costs for claims that have been incurred but not
yet paid or reported (IBNR)
Self-Funding for the Mid-Sized Employer
FIN
AL
THO
UG
HTS
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Self-funding is not an automatic money-maker
There are risks involved, so be aware of them, along with terms associated with self-funding, before making a decision
Self-funding is a commitment, not a funding arrangement to try on a year-by-year basis
Emphasis is on data, wellness, communication and education
Enlist the assistance of a qualified consultant (CBIZ!)experienced in self-funding
True consultant, not just a “broker”
Self-Funding for the Mid-Sized Employer
QU
ESTI
ON
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THANK YOU FOR YOUR TIME!
QUESTIONS AND NEXT STEPS?
Self-Funding for the Mid-Sized Employer
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CONTACT INFORMATIONCole Harris, RHUCBIZ Employee Services [email protected]
Self-Funding for the Mid-Sized Employer