by Christine Ballew-Gonzales
SBJ Contributing Writer
Companies looking for creative ways to manage the cost of health insurance for their employees have an option which is becoming more popular all the time. A self-insurance plan, also referred to as a partially self-funded plan, can be set up in lieu of more conventional policies.
With a partially self-funded plan, the employer pays into a fund from which day-to-day claims are paid, according to Dan Ruggeri of Employee Benefit Design. Stop-loss, or reinsurance, policies are paired with the fund to handle catastrophic claims.
A third-party administrator, or TPA, is hired to handle claims, pre-certification, and communications about employee benefits.
The costs of the stop-loss premium and TPA remain fixed, and the employer only pays for the health insurance claims which occur each month, as opposed to paying the same premium for a conventional policy regardless of whether there were claims.
There are several tangible benefits of having partially self-funded health insurance, according to Dan Burns, also of Employee Benefit Design.
One very positive advantage of this type of plan is that the employer actually controls the cash flow.
"You only release cash on an as-needed basis, as opposed to just writing the same premium check each month," Burns said. "The employer pays the monthly administrative costs plus the claims used each month."
In addition, self-funded plans give employers a lot more flexibility in plan design.
"You can custom design your own package," Burns said.
But sharing in the savings gained during months when there are few claims also means sharing the cost in times of higher risk, according to Gordon Kinne, owner of Med-Pay Inc.
"Self-funding is not for everyone," Kinne said. "You need to have a desire to take some risks."
Kinne, who has 20 years' experience with self-funded insurance plans, said his company handles such plans for businesses with as few as 20 and as many as several thousand employees.
Self-funding plans are getting noticed once again in the wake of this decade's managed-care shakeup, Kinne said.
"It's becoming an option that people are looking at again," he said.
There are certain qualities a company must possess in order to benefit from the self-funding option, Kinne said.
"It's for companies who really want to be proactive in the type of coverage they're offering their employees," he said. "It's also for companies who are interested in managing their costs."
But the requirements for self-funding aren't all about money, Kinne said.
An employer who wants a self-funding plan must be willing to spend a certain amount of time evaluating claim activity and educating employees about their benefits.
Employers who don't wish to take the time to do those things should probably stick with a conventional policy, Kinne said.
Good candidates for a self-funding situation have a well-established business and predictable cash flow, and will be able to ride the wave of claims, saving during times when few claims are made, and absorbing the expense when claims are higher.
Art Trampler, marketing director for Comp Care of the Ozarks Inc., a certified managed-care organization, said there are certain business situations that make self-funding prohibitive.
A new company with a small number of employees is probably not a good self-funding candidate, nor is a business with unstable cash flow.
"Companies have an opportunity to benefit during especially good years, but they must also take the risks of an especially bad year," Trampler said. "If your employees and their dependents have an especially healthy year, that money continues to stay in your trust fund."
Trampler said that customer feedback indicates that employers using a partially self-funded health insurance plan experience better customer service because of more localized service.
"It shows the employee that the employer cares about what kind of plan they are providing," Trampler said.
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