Things to know about Funding

Contract Funding Options

  1. Fully insured contracts – The insurance carrier assumes all liability for plan costs and charges the employer monthly premiums based on claims experience (utilization), administration charges, network access, and customer service resources. Premiums are renegotiated each year, based on claims for the previous year. Employer can only modify plan design to offset plan costs, if allowed by the carrier.
  2. Self-funded contracts – The employer assumes the liability for claims and pays an administrative fee to the carrier(s) to administer the plan. Employers have flexibility in plan design and eligibility rules, but are governed by federal regulations for self funded plans. The employer can reduce risk/liability by purchasing stop loss coverage for high dollar claims. Compliance responsibilities are assumed by the employer.

Advantages of Self Funding

Cash flow advantages:

  • Pay as you go approach
  • Reserves held by employer (approx. 2 mos.)
  • Utilize the earnings on claim payments pending claims processing

Cost savings:

  • Interest on funds otherwise held by the insurer
  • Reduced Fixed Costs
  • Depending upon size, costs are based on Plan’s experience versus an Insurance Company’s pooled business experience

Plan control:

  • Easier monitoring of claims costs
  • Access to more detailed claims and utilization data
  • Can carve out Prescription plan to third-party to realize additional savings

Plan design flexibility:

  • Can customize plans to fit employee needs

Stability of self-funding:

  • Larger employers rarely return to fully insured

Fiduciary Responsibility:

  • Fiduciary options available (reduce liability)

Allow claims appeals to be handled by carrier, in compliance with Healthcare Reform
Allow claims appeals to be handled by outside third party

Disadvantages of Self Funding

Acknowledged claim experience:

  • NMSU would be funding actual claims versus paying a monthly known “rate” – with the potential for liability up to the first $200K (if that is where the stop loss deductible is set)
  • Worse than average claim experience could cause higher costs
  • There could be monthly fluctuations in claims/plan costs

Budgeting the program:

  • Monthly fluctuation of cash flow, unless reinsurer will provide monthly cap
  • Devise a method of anticipating monthly expenditures
  • Need to have funds available to pay large claims prior to stop loss reimbursement (not necessarily depending on carrier)
  • Setting up reserves

Increased employer involvement:

  • Verifying eligibility
  • Maintaining banking arrangements
  • Client bears responsibility for Legislative Compliance (i.e., HIPAA – the NMSU plan would be the Covered Entity, not the carriers)
  • Would require changes to policies and procedures
  • Increased fiduciary liability
  • Responsible for writing, maintaining, producing plan documents, Summary Plan Descriptions, etc.

What Are Others Doing?

What other employers are doing to offset rising health care costs:

Percentage of respondents pursuing the changes

Changes

Colleges and Universities 500+ Nonprofit 500+ Southwest 500+ National 500+
Increased deductibles, copays, Out of Pocket max

37%

42%

37%

42%

Renegotiate vendor Administrative Services Only (ASO) fees (self funded plans)

37%

36%

32%

40%

Add/renegotiate performance guarantees for ASO Vendors

24%

25%

26%

25%

Audit plans – confirm accuracy of claims  based on plan design

51%

50%

41%

46%

Put medical plan out to bid to other carriers

34%

37%

33%

42%

Put components of plan out to bid (such as pharmacy or behavioral health)

20%

21%

26%

24%

Eliminate high-cost or more generous medical plan(s)

6%

11%

15%

Above information gathered through Mercer’s national survey, with the below participants

Employers Number of Respondents
Colleges and Universities 500+ employees 85
Nonprofit 500+ employees 398
Southwest 500+ employees 104
National 500+ employees 1791