Take Charge of your Healthcare Strategy - Part 1 of 3

Part 1 of our 3-part series:
What is Self-Funded Health Insurance?

Healthcare costs constitute a significant portion of a business's budget, prompting companies to seek strategies for managing these expenses.  Evaluating and selecting health insurance options can be a daunting task.  Clear advisement provides the knowledge and understanding to develop strategies with successful solutions that stay within budget, driving security and growth.  Join us in our 3-part series as we explore the intricacies of self-funded health insurance to uncover its advantages, obstacles, and key factors to consider when determining if the option is a good fit for you.

The two most common financial funding options for employer-sponsored health plans are generally:

• Fully insured plan -  defined as when an employer buys a group health insurance policy from an insurer, the policy documents define the plan's benefits, and the insurer assumes responsibility for administering benefit claims for all covered individuals. 
• Self-funded plan -   defined as when an employer is responsible for defining the plan's benefits, and paying for those benefits to covered individuals per the terms of the plan. This means the employer assumes the financial responsibility for covering the cost of medical claims, administrative expenses, and stop-loss insurance (which protects against catastrophic claims).
  • Another type of self-funded plan is a level-funded plan in which the employer makes a set payment each month to an insurer or third-party administrator which funds a reserve account for claims, administrative costs, and stop loss premiums. When claims are lower than expected, surplus claims payments may be refunded at the end of the contract.

Components and terminology associated with self-funded insurance

Stop-Loss Insurance - a form of financial reinsurance that limits the amount a plan sponsor has to pay in claims, also referred to as excess loss insurance.

• Specific Stop-Loss:  Protects against individual claims exceeding a predetermined threshold (e.g. $100,000 per individual)
• Aggregate Stop-Loss: Safeguards against the total claims of the entire group exceeding a specified threshold within a given policy period

Third Party Administrator (TPA) - a third-party administrator can be contracted to manage the day-to-day operations of the health plan.  TPAs serve as intermediaries between employers and healthcare providers, facilitating the smooth operation of the self-funded plan.  Administrative tasks may include:

• claims processing
• provider network management
• member enrollment
• customer service

Administrative Services Only (ASO) Arrangement - a contract between a self-funded employer and a TPA where the TPA provides administrative services without assuming any financial responsibility.  The employer retains responsibility for funding healthcare claims and stop-loss coverage.  Administrative tasks may include:

• claims adjudication
• network management
• utilization review

Utilization Review - a process used by self-funded plans to evaluate the medical necessity, appropriateness, and quality of healthcare services and treatments. It helps ensure that patients receive quality care and resources are utilized efficiently. 

Provider Network - consists of healthcare providers, such as hospitals, physicians, specialists, and other healthcare facilities, that have contracted with the self-funded plan to provide services to plan participants at negotiated rates. Employers may choose to establish a preferred provider organization (PPO) or a narrower network, such as a health maintenance organization (HMO), to manage costs and steer participants to high-quality providers.

Pharmacy Benefit Manager (PBM) - third-party administrator of prescription drug programs. PBMs are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary (list of covered drugs), contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers.

Understanding the basic components and terminology of self-funded health insurance is crucial in effectively evaluating this strategy.  Familiarity with these terms will empower you to make informed decisions and navigate the complexities of the healthcare landscape with confidence.  As self-funded arrangements continue to evolve, staying informed and engaging with knowledgeable professionals is key to maximizing the benefits of self-funding while mitigating potential risks.

Our next update will explore the advantages and points of evaluation of self-funded health insurance, stay tuned.

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