Self Funded Health Plans: A self-funded (or self-insured) health plan is one in which the employer assumes some or all of the risk for providing health care benefits to his employees. He takes control of the assets of his plan, invests them to his advantage, and eliminates the insurance company charges. The employer becomes the fiduciary.
Advantages of Self-Funding:
Self-funded plans are subject to federal regulation rather than state regulation thereby giving an employer more control over the plan benefits.
Agents or brokers assist the employer in developing their own unique plan of employee benefits. This plan may be very similar to one previously offered on a fully-insured basis.
Employees see the employer as the benefit provider rather than the insurance company, creating a more direct correlation between the employee’s benefit plan and the employer.
A self-funded employer only pays benefits based on his employees’ histories and/or claim experience.
The employer retains control over the health plan reserves, enabling maximization of interest income. Self-funding offers cash flow advantages not found in fully insured arrangements. Also, an employer only pays for the claims he incurs during the contract year. The coverage is not pre-paid, thereby again, improving cash flow.
An employer doesn’t pay state premium taxes, which usually range form 2% to 3% of the monthly insurance premium.
Stop Loss Coverage: In order to provide an extra measure of financial coverage to those employers who offer self-funded health plans, most self-funding employers purchase Stop Loss coverage. This excess risk coverage protects against unforeseen catastrophic claims that would cost more than is budgeted in the plan, and that would therefore place undue financial burdens on the employer. There are two types of stop loss coverage:
Specific coverage: Insures against a single catastrophic claim that exceeds a dollar limit chosen by the employer and agreed to by the stop loss carrier. For example, specific coverage would come into play if one of the covered participants was in a catastrophic accident and had claims that exceeded the agreed upon dollar limit (known as the specific deductible). In this case, the specific coverage would reimburse the employer for the covered expenses beyond that dollar limit.
Aggregate coverage: Insures against all the claims exceeding a specific dollar limit chosen by the employer and agreed to by the stop loss carrier. If all the claims payable exceed the agreed upon dollar limit (know as aggregate liability), aggregate coverage would reimburse the employer for the excess.
