Stop-Loss Insurance – Specific, Aggregate & ASO Claims & Risk Mgt. Services
Self-Funded Benefits Plans – An Overview
by Paul M. League, QFP — QUALIFIED FINANCIAL PLANNER
The key advantage to Shared Self-Funding your employee benefits is that claims (if any) are not paid or funded, until after they have actually been incurred. With traditional, fully insured arrangements, you are charged a “loaded premium” which includes all of the fees of a Self-Funded plan PLUS “projected” claims, PLUS an added charge for the Insurer’s “claims reserve” to further protect them. These charges are the same whether the Insurer pays one million in claims or only $1.00! With a traditional, fully insured plan, you don’t receive any refunds from the premiums you have spent even when your claims experience is very good. In other words, if your claims are under the projected claims levels, the Insurer returns no money to you. If the claims exceed their projections the Insurer will simply give you a greater increase in rates than inflationary trending would have otherwise required. In either scenario you lose with a traditional, fully insured, plan.
Shared Self-Funding (sometimes also referred to as “participatory funding”) puts you in the drivers seat. It does this by first allowing you to self design your own plan of benefits, and more importantly it does this by not requiring you to pre-pay insurance claims that may never occur. Of course when claims do occur then the Shared Self-Funded plan provides Specific Stop Loss Insurance to cover individual employee shock claims in excess of an agreed upon deductible amount, and it provides Aggregate, or “overall” Stop Loss Insurance, to protect your total claims in a worst case claims scenario = “Shared”.
Shared Self-Funding is generally best suited for an employer groups of 100+ lives, with multiple State locations (due, in part, to its total or partial ERISA exemption, as the case may be, from State benefits requirements), who must meet the diverse needs inherent in most large, growing employer groups. It is further considered the vehicle of choice in a case where the employee population is young, the industry is white collar, and the company is in a good growth mode. After all, you hire healthy employees, not sick ones; therefore, your chances for minimal claims is greatest when you are on the grow and your employees are, on average, young & healthy. In a plans first year there is the extra advantage of an initial claims lag period, or buffer, of 90 days or more. This “claims lag,” and general lack of claims activity, serve to deliver significant cash flow advantages to your business allowing you to keep money in your company that would otherwise be paid out in unrecoverable “loaded premiums” if you were instead to enroll in a traditional, fully insured, program. Claims are not constant, with some years higher than others; however, since employer’s have Health Insurance for the long term (i.e. the life of their business) most prefer to be in a position of control over the components of their Health plan rather than subject to the dictates of an outside Insurer that only has its own selfish profit motives in mind.
With Shared Self-Funding you have the control over benefits (with few Federal and State Law exceptions), control over your premiums/cash flow, and therefore control over your plans overall “cost” in those times when claims are lower & with appropriate types of Insurance for those times when claims are higher. Only Shared Self-Funding offers you control of your destiny, and that’s real “Health Care Reform”.
Shared Self-Funding is the approach most often used by fortune 5000 companies and many other successful and growing companies. Contact us for a look at the various components and pricing structures that MAY be used by you in the design of your plan. All of these components are variable; again, you have the control. You can pick your benefits, your TPA (Claims Administrator), your Utilization/Specialist Referral service, your Insurer/Underwriter, your EPO/PPO, etc. The choice is yours!
We trust that the recommendations we make will be suitable for you but want you to understand that we are here to adjust any of the variables as you see fit to help to create a customized Plan most desirable for you and your valued employees.
Disclaimer: The material discussed herein is meant for general illustration or informational purposes only and is not to be construed as investment advice. Although the information has been gathered from sources believed to be reliable, it is not guaranteed. Please note that individual situations can vary; therefore, the information contained herein should be relied upon only when coordinated with individual professional advice. We are not licensed for and therefore do not provide tax or legal advice.
About the Author: Paul M. League, QFP — QUALIFIED FINANCIAL PLANNER, is the Founding Principal of League Financial & Insurance Services (www.LeagueFinancial.com), which is a privately held company, established in 1984, and located in Palm Desert, CA. Paul and his company specialize in assisting clients to create, expand & preserve assets “…in a league of our own.” Contact Information: Paul M. League, P.O. Box 11800, Palm Desert, CA 92255-1800; 800.482.5347; Info@LeagueFinancial.com. © Paul M. League. All rights reserved.
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