MAKING THE MOVE TO SELF-FUNDED MEDICAL PLANS THE ESSENTIAL GUIDE

Transcription

1 MAKING THE MOVE TO SELF-FUNDED MEDICAL PLANS THE ESSENTIAL GUIDE

2 IN AN ATTEMPT TO REGAIN CONTROL AND DIVERT THE IMPACT OF CERTAIN ASPECTS OF REFORM, MANY ARE SEEKING AN ALTERNATIVE TO TRADITIONAL FULLY INSURED COVERAGE: SELF-FUNDED MEDICAL PLANS. The Patient Protection and Affordable Care Act (PPACA, or commonly referred to as the Affordable Care Act) is transforming the healthcare marketplace. As a result, employers of all sizes are reviewing the design and funding of the medical plans they offer employees. In an attempt to regain control and divert the impact of certain aspects of reform, many are seeking an alternative to traditionally fully insured coverage. Most recently, this is due to the fact that fully insured medical plans offer employers less control over design and are subject to more taxes than self-funded medical plans. Specifically, self-funded plans are exempt from offering state-mandated benefits and are exempt from paying taxes of up to 10% of premium. There have always been advantages to self-funding, but they have become more compelling since the implementation of PPACA. So where typically larger employers have implemented self-funded arrangements, smaller employers have traditionally implemented fully insured arrangements. Of note, as of 2013, 94% of employers with 5,000 or more employees, 79% of employers with 1,000 4,999 employees, and 58% of employers with employees were self-funding their medical plans; however, only 16% of employers with employees were self-funding their medical plans. This shift has more small employers considering self-funded arrangements, looking to enjoy the rewards without incurring the risks. New arrangements will allow them to dictate design on a fixed monthly/maximum annual cost basis. And, they will be able to develop and implement targeted risk management programs, similar to those developed and implemented by larger employers, all with an eye to the bottom line. All that being said, self-funding will continue to be the funding arrangement of choice for more and more employer clients and prospects, regardless of size. 1

3 TABLE OF CONTENTS CHAPTER 1: GUIDELINES DRIVING SMALL EMPLOYERS TO SELF-FUNDING pg 3-5 CHAPTER 2: BENEFITS OF SELF-FUNDING pg 6-9 CHAPTER 3: WHAT ARE SELF-FUNDED LEVEL PREMIUM EQUIVALENT PLANS? pg CHAPTER 4: DE-BUNKING THE MYTHS pg CHAPTER 5: WHO IS A GOOD CANDIDATE FOR SELF-FUNDING? pg CHAPTER 6: MAKING THE TRANSITION TO SELF-FUNDING WITHOUT CLAIMS DATA pg CHAPTER 7: STRATEGIES TO REDUCE SELF-FUNDING RISKS pg CHAPTER 8: ABOUT THE ALTERNATIVE RISK TRANSFER PRACTICE pg

4 GUIDELINES DRIVING SMALL EMPLOYERS TO SELF-FUNDING MA K I N G T H E MOV E TO SE L F- FU N D E D ME D I C A L P L A NS 3

5 TODAY, A SMALL EMPLOYER WITH A HEALTHY EMPLOYEE POPULATION CAN PURCHASE INSURANCE AT A LOWER COST THAN AN EMPLOYER OF SIMILAR SIZE WITH A LESS THAN HEALTHY EMPLOYEE POPULATION. When it comes to health benefits, most employers want to figure out a strategy and stick with it, year after year. But what should small employers do when their existing plan faces increasing costs, less flexible design choices and the possibility of federal penalties? Small employers (those with fewer than 200 workers) have been slow to embrace self-funding, especially since it historically only made sense for large employers. However, the Patient Protection and Affordable Care Act has changed that and many small employers are beginning to recognize that their most viable option may be to abandon their fully insured approach and switch to self-funding. Beyond the broad provisions of the new law, there are specific regulations that will drive prices for fully insured coverage even higher for small employers. This is a result of the Affordable Care Act limiting how insurers address the varying risks of different pools of employees. In the past, employers with a healthy employee population could purchase insurance at a lower cost than employers of similar size with a less than healthy employee population. Under modified community rating, the federal law prohibits health risk as a factor to calculate premiums for employer groups of fewer than 50 employees, soon growing to 100 employees. Many small employers will see their costs rise, despite attempts to encourage healthy habits and smart consumer choices. 4

6 At the same time that premiums rise, small employers are likely to see even fewer options in the fully insured plans they are able to offer. Insurers are streamlining business models in response to the federal law and the result is less flexibility for employers. This change is the consequence of the Medical Loss Ratio (MLR) provisions of the Affordable Care Act. Under MLR, insurers must spend 85 percent of the premiums they collect on medical care for groups with more than 100 employees, and no less than 80 percent for smaller groups. With a tightly constrained budget for administrative costs, commissions and overhead, insurers are moving quickly to consolidate their operations. Those who were once willing to work with small employers to design custom coverage solutions now want all companies to fit into off-the-shelf plans. Under the guaranteed issue rule, insurers must sell products to small employers with less than 50 employees (growing to 100 in 2016) regardless of the current health status of the workforce. These small businesses that try self-funding and run into problems are not frozen out of the fully insured market as they might have been in the past. They can capture the savings and regain control of their health benefits year after year with selffunding and then return to fully insured benefits if and when that strategy makes more sense. Although the full effect of the Affordable Care Act remains to be seen, the massive impact on every aspect of workplace health benefits is already being felt. Small employers that stick with what they have always done are going to be whiplashed by new government regulations that are driving prices higher and creating fewer choices. Instead, they should give selffunding on a level premium equivalent basis a fresh look as a strategy that puts them in control while still retaining a safety net. 5

7 BENEFITS OF SELF-FUNDING MA K I N G T H E MOV E TO SE L F- FU N D E D ME D I C A L P L A NS 6

8 THE ADVANTAGES FOR EMPLOYERS WHO SELF-FUND HEALTHCARE BENEFITS WERE RECOGNIZED IN A U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES REPORT ISSUED IN THESE INCLUDE: GREATER FLEXIBILITY AND CONTROL OVER PLAN DESIGN. With traditional fully insured medical plans, employers are subject to modified community rates and may only have a handful of plan options available to them. If an employer s employee population is primarily young healthy workers, they may be overpaying. Self-funding does away with modified community pricing and allows employers to pay premiums based on the population s risk profile or mod factors, not based purely on census data and the area of the country in which they reside. ACCESS TO DATA ON CLAIMS TO HELP SHAPE COVERAGE DECISIONS. Traditional fully insured medical plans keep claims information for employers vague at best. Self-funded medical plans offer complete transparency into a company s claims history. This can help employers develop wellness programs to meet the specific needs of their employees while being able to make the most advantageous coverage decisions. BEING ABLE TO AVOID STATE INSURANCE PREMIUM TAXES AND REGULATORY REQUIREMENTS. The Employee Retirement Income Security Act (ERISA), is the federal law that enables self-funded plans and preempts most state laws and mandates. Employers also avoid paying state premium taxes, which can reduce total costs by as much as 2.5%. Because of fluctuating medical costs, savings may vary year to year, but over time employers that qualify could expect to be able to stay ahead of the game. 7

9 TAXES AND REGULATORY REQUIREMENTS One of the benefits of self-funded medical plans is their exemption from state-mandated benefits. But their exemption from paying premium taxes (federal and state) of 8% of premium (growing to 10% of premium), is as much of a benefit if not more. REFORM MEASURES DESCRIPTION TAXES AND FEES Health Insurance Tax Insured plans pay tax to fund provisions of law 2% growing to 4% of premium Exchange Fee Insured plans pay fee to support exchange 3.5% of premium State Premium Tax Insured plans are a source of revenue to the state 2.5% of premium Risk Adjustment Fee Insured plans pay fee to subsidize adverse selection $1 per member per month 8

10 MORE FLEXIBILITY MORE PLAN OPTIONS LOWER COSTS SELF-FUNDING HIGHER QUALITY OF CARE GREATER CONTROL 9

11 WHAT ARE SELF-FUNDED LEVEL PREMIUM EQUIVALENT MEDICAL PLANS? 10

12 IF YOU RE LOOKING FOR A STEADIER ALTERNATIVE THAT ARMS YOU WITH DATA TO ASSIST YOUR CLIENTS IN BENDING THE COST CURVE, THEN SELF-FUNDED LEVEL PREMIUM EQUIVALENT MEDICAL PLANS MAY BE FOR YOU. Self-funded level premium equivalent medical plans are based on an innovative funding approach that provides all the advantages of an ERISA plan with the payment and annual guarantee of a fully insured medical plan. It is a simple way for small- and medium-size employers to safely self-fund their medical plans. The appeal of this approach can be found in its simplicity. It is easy to understand and fully transparent, eliminating the renewal surprise. SELF-FUNDED LEVEL PREMIUM EQUIVALENT MEDICAL PLANS OFFER: Fixed monthly payments regardless of claims Annual maximum plan cost Plan design flexibility Ability and incentive to save dollars via cost control efforts Detailed claims reporting Opportunity to save dollars if claim experience is good Terminal protection 11

13 CLAIM FUNDING AND PAYMENT The fixed monthly payments and annual maximum plan costs are guaranteed by the use of stop-loss coverage issued by an insurance company. Employer monthly payments are used to: fund the employer s claims account pay all the fixed costs, such as administration, network, cost control, stop-loss, and other services When presented for payment, claims are paid from the employer s claims account. If the claim account is inadequate to pay bills presented, the stop-loss carrier makes the payment. At the end of the plan year, claim dollars left over belong to the employer. SELF-FUNDING DRIVERS What is driving self-funding? Small employers, defined as those with fewer than 200 employees, have traditionally been slow to embrace self-funding as it has historically only made sense for large employers. Over the last several years, double-digit increases in health insurance premiums have brought the topic of self-funding to the forefront and generated significant interest. These costs correspond to a number of provisions contained in the Affordable Care Act, such as state-mandated benefits and additional premium taxes. Plus, by grouping insureds by age tiers rather than health risk, costs are sure to rise for those companies who employ older workers, despite a healthy history with minimal claims. 65% A new federal report estimates that 65% of small firms will pay more for employee health insurance as a result of the federal healthcare law while the remaining 35% will see premiums drop. Those increased healthcare costs will probably be passed on to workers and their families, according to estimates from the Office of the Actuary at the U.S. Centers for Medicare & Medicaid Services. 2 12

14 DE-BUNKING THE MYTHS MA K I N G T H E MOV E TO SE L F- FU N D E D ME D I C A L P L A NS 13

15 THERE ARE A COUPLE OF MYTHS OUT THERE REGARDING SELF-FUNDING. HERE IS A CLOSER LOOK AT WHAT IS FACT AND WHAT IS FICTION ABOUT SELF-FUNDING MEDICAL INSURANCE. MYTH #1: SELF-FUNDING IS NOT A VIABLE ALTERNATIVE FOR SMALLER GROUPS TRUTH: This is a common concern that has merit. Large groups rather than small businesses often have more funds and outside benefits advice. As the Affordable Care Act begins to impact the market, self-funding has quickly become a safe and viable option for the small to midsized market. Through the use of self-funding, an employer can bypass many regulations within PPACA that add significant costs, such as increased benefits, modified community rating, cost share limits, taxes and fees. As a result, many self-funded carriers have responded by developing turnkey plans with lower cost points, stop-loss insurance and more. 1 2 MYTH #2: SELF-FUNDED PLANS CAN T HOLD 14 DOWN HEALTHCARE COST INCREASES BETTER THAN FULLY INSURED PLANS TRUTH: The Department of Labor appendix report provides a stark comparison of costs analyzed by consulting firm Deloitte. For employers with more than 200 employees, Deloitte found premiums rose an average of $248 annually for self-funded plans from 2009 to 2010, but soared $808 for fully insured plans, representing the potential savings to explore with self-funded plans. 3

16 WHO IS A GOOD CANDIDATE FOR SELF-FUNDING? 15

17 Business owners are best at doing what they do. Unless they are in the benefits and insurance field, they will need some help comparing options, prices and plans. Partnering with an organization who can help assess a client s risk profile can help determine if the business would be suited for self-funding. Following are some points to take into account when assessing who is a good candidate for self-funding. SELF-FUNDING IS NOT A ONE-SIZE-FITS-ALL SOLUTION AND BROKERS NEED TO BE CAREFUL NOT TO MAKE PROMISES WHEN ADVISING CLIENTS. DEPENDING ON THE GROUP, REMAINING FULLY INSURED COULD BE THE BEST OPTION. BROKERS CAN WORK WITH A THIRD-PARTY ADMINISTRATOR TO PROVIDE ACCESS TO ONLINE GROUP AND INDIVIDUAL HEALTH QUESTIONNAIRES SO EMPLOYERS MAY GATHER RELEVANT INFORMATION AND BUILD A RISK PROFILE ON THE COMPANY DOWN TO THE MEMBER LEVEL. REGARDLESS OF THE OUTCOME, THE RISK PROFILES, OR MOD FACTORS, CAN SERVE AS A BASIS FOR DEVELOPING TARGETED RISK MANAGEMENT PROGRAMS. THESE ARE SIMILAR TO THOSE OFFERED BY COMPANIES WITH ACCESS TO THEIR OWN CLAIMS INFORMATION. BROKERS NEED TO DO MORE THAN JUST TALK TO THEIR CLIENTS ABOUT SELF- FUNDING; THEY NEED TO PROVIDE THEM WITH INFORMATION ABOUT THEIR CLAIMS AND EMPLOYEES HEALTH STATUS, AS WELL AS HELP DEVELOP THE CONFIDENCE THEY NEED BEFORE MAKING THE TRANSITION. A FEW CHARACTERISTICS THAT MAY HELP IDENTIFY WHO IS A GOOD CANDIDATE FOR SELF-FUNDING: 75% or more of group participates (meaning there is a high level of employer contribution) 5 + participating employees Employer is committed to having its own medical plans Employer who takes a long-term view of its medical plans Financially stable organization Large percentage of younger employees 16

18 MAKING THE TRANSITION TO SELF-FUNDING WITHOUT CLAIMS DATA 17

19 A GOOD FIRST STEP TYPICALLY INCLUDES A COMPREHENSIVE EMPLOYEE QUESTIONNAIRE TO DETERMINE IF SELF-FUNDING IS RIGHT FOR THE ORGANIZATION. The decision for employer clients or prospects to transition from a fully insured to a self-funded arrangement is often a difficult one. And, it is particularly difficult for those with little or no claims experience. Working with a partner that understands the difficulty of making such a decision is key to providing guidance as to whether self-funding is an appropriate arrangement. A good first step typically includes a comprehensive multi-carrier employee questionnaire to determine if self-funding is right for the organization. And the right partner will provide information necessary to help secure quotes from carriers in the marketplace. The finding from the employee health risk questionnaire, in addition to employer disclosure statements, helps determine risk profiles or mod factors, not only for each employer client or prospect, but also down to the member level, noting conditions. Those employer clients and prospects with lower-than-average risk tolerance levels and/or higher-than-average risk profiles or mod factors should be counseled to retain a fully insured arrangement. However, those employer clients and prospects with higher-than-average risk tolerance levels and/or lower-than-average risk profiles or mod factors should be counseled to transition to a self-funded, level premium equivalent arrangement. SUCH AN ARRANGEMENT WILL OFFER THE FOLLOWING ADVANTAGES: Assurance of fixed monthly premium payments Avoidance of state-mandated benefits, as well as state and federal premium taxes Availability of risk/cost management programs Access to detailed claim data and analytics Potential for return of excess premium Full funding of claims and reserves We believe this process is the only way brokers can advise their employer clients and prospects with little or no claims experience as to whether they should remain fully insured or transition to a self-funded level premium equivalent arrangement. 18

20 STRATEGIES TO REDUCE SELF-FUNDING RISKS 19

21 Self-funding doesn t require that clients incur additional risk, but should a group move from a self-funded level premium equivalent arrangement to a more traditionally self-funded arrangement, then there are additional elements to consider when consulting on a client s self-funded benefit arrangement. A recent study found that the rate of $1 million medical claims in 2000 was less than one per every million covered members; by 2005, the rate was 11 claims per million. 4 It s a fact that many employers cannot afford to take the chance of having an employee require high-cost medical services. However, there are solutions to help mitigate a high-cost employee claim. HERE ARE FOUR STRATEGIES TO REDUCE THE RISK AN EMPLOYER TAKES ON WHEN TRADITIONALLY SELF-FUNDING THE MEDICAL PLAN. 1 COVER ORGAN TRANSPLANTS SEPARATELY With the number of organ transplants rising, it may make sense to purchase transplant-specific insurance when an employer decides to self-insure. At the end of 2007, more than 180,000 people were living with a functioning transplanted organ a 50 percent increase from Today, more than 100,000 people are registered on an organ waiting list. Costs to treat transplant cases can range from $260,000 for a kidney to more than $1 million for a heart-lung transplant. Having a separate policy to cover these expensive, yet life-saving procedures protects the employer from unexpected costs. 20

22 2 ADDRESS SPECIALTY PHARMACEUTICALS A 2009 study found that almost 300 drugs are now classified as specialty pharmaceuticals expensive medications that treat cancer, hemophilia and other chronic diseases by most health plans. 6 The cost for a single patient over the course of a year can range from $5,000 to $300,000. Contracting with a pharmaceutical benefits management team that specializes in this area can reduce costs by obtaining discounts, eliminating the buy and bill approach that allows doctors to charge a markup and use rigorous utilization review. 3 MANAGE DIALYSIS TREATMENT CAREFULLY Both the number of people and the costs associated with end-stage renal disease are rising. In 2007, about 111,000 new patients entered treatment for end-stage renal disease and 365,000 people were undergoing dialysis. 7 Public and private spending on treatment reached more than $35 billion. Because the typical dialysis case can cost between $30,000 and $50,000 per month, self-funded employers may find it beneficial to contract with dialysis management specialists to control costs. Techniques include invoking Usual and Reasonable rates to reduce invoices, helping to arrange for home dialysis when appropriate, and obtaining discounted pricing for the anemia-fighting drug EPOGEN. 4 ENCOURAGE EMPLOYEES TO MANAGE CHRONIC CONDITIONS Estimates for the nation s annual cost of chronic conditions, such as diabetes and cardiovascular disease, range from $174 billion to $403 billion. Costs can be significantly reduced when patients carefully follow their doctor s instructions. 21

23 ABOUT THE ALTERNATIVE RISK TRANSFER PRACTICE MA K I N G T H E MOV E TO SE L F- FU N D E D ME D I C A L P L A NS 22

24 ABOUT THE ALTERNATIVE RISK TRANSFER PRACTICE The AmWINS Group Benefits Alternative Risk Transfer (ART) Practice understands the difficulty of making the decision to switch from a fully insured to a self-funded arrangement and offers support as to whether self-funding is an appropriate arrangement for any given employer. Our ART Practice is well positioned to help brokers advise their employer clients and prospects with little or no claims experience as to whether they should remain fully insured or transition to a level premium equivalent selffunded arrangement and secure competitive quotes for qualifying arrangements all on an automated basis. As employers continue to search for ways to provide healthcare benefits to their employees at lower costs, there is no need to be afraid of the self-funding option. While barriers exist that make the decision to abandon fully insured coverage more difficult for small- to mid-sized employers, there are strategies to address those barriers and hold out the promise of greater control and lower costs. It s an option that can make a difference for small employers in today s challenging business environment. If you have an employer client or prospect looking to transition from a fully insured to a self-funded arrangement, please give us a call to learn how our risk profiling service and our suite of level premium equivalent products can provide answers and solutions. TO SEE THE FULL REPORTS U.S. Department of Health and Human Services U.S. Department of Labor U.S. Department of Labor Deloitte Appendix 1 Report to Congress on a Study of the Large Group Market, U.S. Department of Health and Human Services 2 Kavilanz, P. (2014, February 25). Obamacare will raise premiums for 65% of small firms. CNN Money. Retrieved from 3 Self-Insured Health Benefit Plans, U.S. Department of Labor Deloitte Appendix, March Unprecedented Growth in Catastrophic Claims May Leave Health Plans Exposed, Evergreen Re, undated press release, available at 5 Wolfe, R.A.; Roys, E.C.; and Merion, R.M., Trends in Organ Donation and Transplantation in the United States, , American Journal of Transplantation 2010, 10 (Part 2): pp Hargrave, Elizabeth; Hoadley, Jack; and Merrell, Katie, Drugs on Specialty Tiers in Part D, February 2009, pp 10 7 Kidney and Urologic Diseases Statistics for the United States, National Institutes of Health, April