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Mike Roche
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Paul RoelkePaul Roelke
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Self-Funding Frequently Asked Questions (FAQs)

What is self-funded insurance?
In a self-funded or “self-insured” health plan, the business or other organization accepts responsibility for the risk of health care for enrollees, who are typically employees and family members. The business self-funds the plan rather than paying a premium to a commercial insurer.

 

What types of organizations can self-fund?
Self-funding has been used successfully by businesses, unions, Taft-Hartley Insurance Trusts, municipalities, school districts and other organizations.

 

What is the minimum size of an employer or organization to self-fund?
In recent years, smaller organizations have pursued self-funding. A typical rule of thumb is that a business should have at least 100 covered lives to effectively self-fund; however, organizations with roughly 30 employees have recently chosen to self-fund. Any organization that provides health benefits and is willing to fulfill the legal and fiduciary responsibilities of self-funding can pursue this option. Data analysis is essential to discover whether self-funding is a wise choice for your health benefit plan.

 

What types of health-related benefits can be self-funded?
Five types of health-related benefits are often self-funded:

 

  • Medical
  • Prescription drugs
  • Short-term disability
  • Dental
  • Vision
What rules cover self-insured benefits?
Self-funded health benefits must primarily comply with the Employee Retirement Income Security Act of 1974 (ERISA). This a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

 

How do I protect my company from high claims?
Companies purchase stop-loss insurance to protect their financial health.

 

What is stop-loss insurance?
Stop loss insurance is purchased from an insurance carrier to cap catastrophic claims risk. This insurance reimburses the business that sponsors the health plan when claims exceed a predetermined level for either an individual or the entire group. Coverage for individual claims is known as “specific coverage” while coverage for group claims is known as “aggregate coverage.”

 

What vendor relationships are available to assist businesses in self-funding?
A business with a self-funded health plan will typically need to use the services of a:

 

  • Third-party administrator to administer the plan. This may include implementing the plan design, bidding for stop-loss coverage, maintaining enrollment records, paying claims and working with the provider network and other vendors.
  • Agent/broker to assess the employer’s needs and help find solutions.
  • Provider network to negotiate discounts with doctors, hospitals and other health services.
  • Stop-loss carrier to protect the employer from high financial claims.
  • Wrap network to cover enrollees who travel or study outside the standard provider network.

In addition, employers may choose to use a:

  • Pharmaceutical benefit manager (PBM) to negotiate discounts for prescription drugs.
  • Health Savings Account (HSA) Administrator to administer accounts linked to high deductible health plans (HDHPs).
  • Case management firm
  • Disease management firm
  • Wellness program vendor
  • Care coordination firm
How do self-funded businesses develop an effective plan design?
The business that provides the health benefits should work with a broker or consultant to develop a health benefit plan design that will address four areas:

 

  1. Customized benefits that meet the needs of the business as well as the workforce.
  2. Coverage and exclusions, which provide control over what is and is not covered by the plan.
  3. The plan’s relationship to larger goals for employee well-being. For example, a wellness-based plan may pay higher levels for preventive care if employees participate in a health risk appraisal.
  4. The role of health benefits in long-term strategy, which includes employee recruitment and retention needs
How do people covered by the plan know what is covered?
Under ERISA, the organization providing the self-funded plan must create and distribute a summary plan description (SPD) that is a clear and complete source of information for employees. The SPD must detail eligibility provisions, the benefits available and how coverage is terminated or denied. The SPD serves as a contract between the employer and employee and is used by the claim administrator and stop-loss carrier to administer claims.

 

The Affordable Care Act (ACA) also requires self-funded plans to provide a shorter Summary of Benefits and Coverage (SBC) that is drawn from the SPD. There are specific requirements for the length, contents and format of the SBC.

What is The Alliance role in self-funding?
The Alliance is a provider network and much more. We have a two-tiered value proposition for employers and other self-funded organizations.

 

  1. The Alliance is a better way for self-funded businesses to buy health care. We offer:
    • Broad choice of doctors and hospitals.
    • Tools for employees to make informed health care decisions based on cost and quality.
    • Information and guidance to help employers manage health benefits.
  2. The Alliance unites businesses and other organizations as purchasers of health care to drive market change. We provide:
    • Payment and purchasing redesign leadership, pilot programs and expertise.
    • Health policy advocacy.

Alliance objectives diagram

Want to network with executives and human resources leaders from other self-funded businesses to find out how it really works?

Attend an Alliance Learning Circle. Learning circles offer presentations from national and regional experts on topics that are crucial to the performance of your health benefit plan, such as compliance, cost savings and the latest trends. Alliance Learning Circles are typically scheduled five times a year.

 

To get your invitation, contact:

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