A Brief Insight into Self-Funded Group Health Insurance and how it works

Since the enactment of the Affordable Care Act in 2010 (ACA), in addition to the rising health insurance costs in the last decade, more small-to-medium sized employers are understanding the benefits with self-funded plans, to lower their health insurance costs and increase profits.

One of the key drivers and benefits towards a self-funded plan is to save the employer on premium, which it would typically allocate to a traditional health insurance plan – paying a traditional insurer a fixed monthly premium, which covers all claims.

A self-funded plan, in short, is where the employer assumes the risk of covering all health insurance related costs for their employees. With the cost of catastrophic claims such as cancer treatments & organ transplants costing above $1 Million, many small-to-medium employers cannot afford this type of expense.

A medical stop-loss policy will cover any claims the employer has in excess of their financial risk capacity. The policy aims to mitigate the risk of high cost claims, by shifting the claim cost over to the re-insurer after a certain aggregate threshold is met. Further, there are also ‘specific’ thresholds when an employer has staff that are more likely to claim than the rest. These specific thresholds will mitigate the risk of catastrophic loss through the use of creative underwriting techniques such as lasers, aggregating spec deductibles, and more. Further, the employer has the option to choose different deductible amounts, which can reduce premiums.

At AFSLIC we offer medical stop loss cover for mid to large sized employers looking for a self-funded plan, which is administered through our sister Third Party Administrator (TPA) – International Benefits Administrators (IBA). All self-funded insurance plans must be administered through a TPA and cannot be enacted directly with a stop-loss carrier. Visit our TPA website at www.ibatpa.com for more information.

Leading worldwide Actuary firm, Milliman have published ‘The Employer Stop-Loss Insurance Marketplace since the Affordable Care Act’ specifying the stop-loss market is a $15 billion industry. This has increased from $8 billion prior to the commencement of the ACA. Milliman have said this growth is related to the increased prevalence of self-funding policies along with changes to the ACA which has increased premiums and plan enrollment (http://www.milliman.com/insight/2017/The-employer-stop-loss-insurance-marketplace-since-the-Affordable-Care-Act/). The ACA further removed exposure limits for stop loss carriers, meaning they are able to carry the full cost of insuring the risk even if the employers have selected a specific threshold – This will accordingly alter the price of these premiums.

Self-insuring also gives employers more flexibility with plan designs, and coverages, making it more affordable for their employees to enroll in quality healthcare. Most employers sized within the 100 – 500 staff range fall into the self- funded insurance market which has been growing in the last few years.

The benefits of self-funded vs fully insured are quite clear: employers can save money which they would traditionally allocate to insurer profit, have more control over benefits and plan designs as opposed to adhering with fixed plan options from an insurer, gain a more in-depth understanding of their own healthcare spend, and mitigate the financial risk of catastrophic losses by holding a stop loss policy. However, a self-funded plan may not be ideal for all types of businesses. One of the key factors a business must understand is the continuous change in the cost of healthcare each month, as claims vary month-to-month. This creates a difficulty to forecast and budget, and may not be suitable for smaller businesses who cannot afford this higher level of risk.

For further information on self-funding your group health cover, or any questions, contact our sister TPA online through www.ibatpa.com, with more contact information.

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