10 self-funding considerations
May 30, 2013 9:49 PM
1. Risk tolerance
Self-funding has cost outlays beyond the administrative fees and claims. There are a multitude of potentials fees and charges, many of them designed to save you money in the long run. But, they are still costs and often require upfront funding. For example, stop loss (also known as reinsurance) helps mitigate the financial risk associated with self-funding. Disease management, wellness programs, and other utilization review options also exist.
2. Cash flow
The financial aspects of self-funding go beyond just paying claims. Significant cash flow is required to ensure the plan meets its obligations to members, claims administrators, supplemental vendors and health providers. Funding claims each week can tax corporate reserves when low receivables cross paths with heavy claims. And stop loss coverage doesn't always alleviate those cash flow burdens.
3. Federal compliance
While not having to adhere to state mandates, ERISA brings forth its own set of document and reporting requirements (including 5500 filings). New requirements also complicate plan administration. A host of other laws and regulations (e.g., Mental Health Parity) place some restrictions on plan design. With a self-funded plan, these responsibilities fall to the employer (now known as the plan sponsor and/or plan fiduciary), not the claims administrator.
4. Plan management
A self-funded plan requires near daily management. Weekly claims funding requests, data file transmissions, usage reports, and vendor supervision necessitates immediate attention. Plus, annually there are several responsibilities including (but not limited to) 5500 filings and distribution of the Summary Annual Report. Do you have the time to oversee these tasks? Will they require additional staff? Can you pay a broker or benefits consultant to help?
5. Separation of the plan from the company
A self-funded plan offers direct information about not only the health of employees, but how much those employees cost to the plan. Names, conditions, and individual claim amounts are given to the employer on a regular basis and the review of these costs are essential to efficient administration of the plan. Creating a wall between management and the benefits department beyond standard HIPAA protocols can be achieved by redacting identifiers, aggregating data, and limiting discussion about members to the minimum necessary information.
6. Exceptions
Appeals requests come both from the claims administrator (or TPA) and from the employees directly. New treatments, unexpected situations, and "grey areas" in the plan documents can force the company to make precarious decisions. A denial can lead to resentment or catastrophic loss for the employee. An override of the plan document can show bias and add additional expense to the plan.
7. Internal plan competition
A self-funded PPO with minimal out-of-pocket costs and low premiums could be detrimental to a fully insured HMO option. Many companies offer multiple plans to employees. Carrier agreements and stop loss contracts usually contain minimum participation requirements with the penalty often being re-rating. Additionally, consider supplemental plans a vision plan may lose all its members if the new self-funded PPO covers optometrist visits and glasses.
8. Education
Like with any benefit change, participants need to know what is covered, where to obtain services and how much they are going to pay. Internal benefits/HR staff will also need training. Employees will come with questions that can no longer be passed off to the insurance company. Also, senior management will expect answers on how the plan is running and anticipated costs and changes for the upcoming year.
9. Plan creation/development/amendment
A self-funded plan requires regular plan review. Legal and administrative changes often require amendments to the plan document. The carriers will also send out amendments to contracts for a multitude of things ranging from minor clarifications of duties to government mandates to changes of sub-vendors. While not usually overly burdensome, be prepared to review your benefits plan at least a few times per year.
10. The participants
Take a good look at the participants. While participant well-being is not the only reason for a benefit plan to exist, remember that benefit packages are designed to be part of the entire compensation package. An adverse benefit plan may direct high-performing talent to other companies. A well-designed benefit and compensation plan will ensure the best workers are hired and retained.
