10/6/14

1

Self-Funding Medical 101 October, 2014

Corporate Office: 250 South Executive Drive, Suite 300 Brookfield, WI 53005 800.627.3660

www.NISBenefits.com

Bill Enright Director of Medical

Scott Bachhuber Market Development

Self-Funding 101

•  Components of a Health Plan •  What is Self-Funding •  Risk Level Spectrum •  Definitions •  Advantages and Disadvantages •  A Quick Recap •  Questions to Consider

Components of a Health Plan ? Fully Insured Program Self-Funded Program

Fixed Monthly Cost - Premium Fixed Monthly Cost - Administration Fee •  Claims Management •  Rx •  Networks •  Claim Processing •  Renewals

•  Claims Management •  Rx •  Networks •  Claim Processing •  Renewals

Components of Funding Options Non-Transparent • PBM (Pharmacy Benefit Management) • Stop Loss Coverage – Reinsurance • Book Rates • Demographics • Claims • ACA Fees • Retention/Margin • Premium Tax • State Mandates • Health Insurer Fee (2.5%) * Cost of components are blended together - Composite rate format

Transparent • PBM (Pharmacy Benefit Management) • Stop Loss Coverage – Reinsurance • Premium Equivalent Rates • Demographics • Claims • ACA Fees * Cost of components are priced out separately – List Bill format

10/6/14

2

What is Self-Funding? The District (Policyholder):

•  Pays a monthly administration fee •  Hires a TPA/ASO to pay claims and

provide administrative services •  Funds a claim when it occurs •  Pays unpredictable, high dollar claims

through stop-loss insurance (safety net)

Fully Insured

Plans

Partial Self-Funded w/Stop

Loss Insurance (safety net)

Pure Self-Funding

Risk levels of Group Medical Funding

100% Transfer of Risk 0% Transfer of Risk Shared Risk

Risk Spectrum Less More

Definitions

The ROI of the SFP is way below the ELR the TPA accounted for in the FTE base rate???? The Return on Investment of the Self-funded Plan is way below the Expected Loss Ratio the Third Party Administrator accounted for in the Full Time Employee base rate.

10/6/14

3

Fully Insured Plan •  The Districts only financial liability is to pay premiums to the insurance company

for employee health coverage •  The fully insured carrier takes on all risk/financial responsibility in exchange for the

premium they are paid Self-Funded Plan •  A self-insured district is one in which the District assumes a limited financial risk for

providing health care benefits to its employees •  Instead of paying a fixed premium every month to an insurance carrier, self-

insured Districts pay for health claims as they occur •  In most cases a Third Party Administrator (TPA) or Administrative Services Only

(ASO) vendor will administer the plan and adjudicate the claims

•  As a measure of financial protection, Districts purchase Stop Loss coverage that protects the plan against high dollar claims

Definitions

Third-Party Administrator (TPA) / Administrative Services Only (ASO)

Both manage the day-to-day operation of the plan

This includes: •  Adjudication of the claims •  Performing the medical management of claims •  Administration of the day-to-day processing of the plan •  Preparing special claim reports and other required data for the plan and the

reinsurer Ø  Third Party Administrators (TPAs) are independent entities whose primary line of

business is the administration of group benefit plans Ø  Administrative Services Only (ASO) are carrier companies like United, Humana,

WPS, and Anthem

Definitions

•  An insurance product that provides protection against high dollar claims

•  Stop loss is purchased by groups who have decided to partially self-fund their employee benefit plans, but do not want to assume 100 percent of the claim liability that exceeds certain limits called individual/group deductibles

Stop Loss – (Safety Net)

Definitions

10/6/14

4

Specific Stop Loss Coverage – 1st safety net Purpose

•  Insures the District against a high dollar claim or unpredictable claim costs incurred by any one individual over the specific deductible amount

•  Aggregate coverage protects the District from the claims experience for the entire group below the specific deductible

So…

Aggregate Stop Loss Coverage – 2nd safety net Purpose

Definitions

The amount funded but not reimbursed ($25,000 in this example) will apply toward the Annual Aggregate Group Stop Loss (Deductible)

SPECIFIC (INDIVIDUAL) & AGGREGATE (GROUP) STOP LOSS Example of how a $130,000 claim would be handled:

District pays the Specific stop loss (deductible) amount: $25,000

…the Insurance Company pays the excess over the stop loss (deductible) amount: $105,000

Self-Funding:

Advantages and Disadvantages

10/6/14

5

Risk •  The District assumes partial financial risk for the group health plan

Added Administration •  Comprehensive Analytics review •  Plan Setup •  Detailed Annual Plan Assessement

Fiduciary Responsibility

•  District becomes the plan fiduciary under ERISA (Employee Retirement Income Security Act) and is ultimately responsible for compliance issues

•  Yearly Notices – (Medicare Part D, Notice of Exchanges..)

•  Health Insurance Portability and Accountability Act (HIPPA)

•  Plan Documents – Summary of Benefits and Coverage (SBC) Ø  All of these things should be discussed with your consultant on an annual basis

DISADVANTAGES OF SELF-FUNDING

Flexibility in Plan Design –  Self-funded plans are not bound by state mandates or insurance company

plan designs

Risk Management ($$$) effectiveness through Stop Loss insurance –  District may choose the amount of risk to retain and the amount to be

covered under stop loss protection

Margin/Profit –  Insurance companies typically charge 3-10% in profit margin

•  Under a self-funded arrangement, this component is eliminated

ADVANTAGES OF SELF-FUNDING

Tax Savings •  No premium tax; thus an immediate savings is realized. (Average state tax is 2%) Assuming annual premium of $1,250,000 x 2% = $25,000 in savings to you!

Avoid the ACA Health Insurer Fee

•  In 2014 it was 2.5% of total premium paid on a fully insured plan. In 2015 it is expected to go up to 3.0%.

Assuming annual premium of $1,250,000 x 3% = $37,500 in savings to you!

Flexiblity

•  Districts have the option of choosing services from a TPA or an ASO in an à la carte fashion

Cash Flow

•  Funds not used during the plan year remain with the district in a reserve fund that can be used in future plan years to pay claims or stabilize the plan costs

ADVANTAGES OF SELF-FUNDING

10/6/14

6

Self-Funding: A Quick Recap •  With self-funding, you pay claims out-of-pocket when

they occur (to a limit) •  Districts can adjust for risk tolerance / Stop-Loss

insurance caps the risk (safety net) •  Self-funding is a long-term strategy for lowering costs •  Savings from wellness plans can be fully realized •  There are many advantages of self-funding:

ü  Better cash flow ü  Tax advantages ü  Lower administrative cost ü  Endless freedom for plan design choices ü  Quality Analytics ü  Changing Insurers does not disrupt employees

Questions for You to Consider

•  Are you looking for long-term cost management? •  Good/Bad Year? (7 year strategy) •  Do you have an average or better than average

claims history? •  Employee Satisfaction? •  Do you want the freedom to customize your plan

to incorporate? ü  An HRA ü  A choice of deductibles ü  Co-insurance ü  Wellness initiatives ü  Premium Differentials ü  Demographic Differences

Consultant Assistance

How do I know if Self-Funding is good for my District?

Self-Funding is a viable option for Districts who understand the administrative demands, the risk, and the potential rewards. It can be an opportunity to take a strategic approach to your health benefits now and into the future.

•  Price out a self-funded plan at your next renewal to see if it would be a good fit for your district

10/6/14

7

For More Information Contact: National Insurance Services, Inc. Scott Bachhuber sbachhuber@NISBenefits.com 800-627-3660 ext. 1293