MELTZER GROUP BENEFITS SELF-FUNDING MYTHS AND ADVANTAGES

Transcription

1 MELTZER GROUP BENEFITS SELF-FUNDING MYTHS AND ADVANTAGES

2 TODAY S AGENDA I. Summary II. Common Misperceptions of Self-Funding III. Advantages of Self-Funding IV. Stop Loss Contract Terms and Options V. Stop Loss Contract Underwriting VI. Self Funding Terminology 2

3 SUMMARY Employers have a choice in how they want to fund their medical benefit plans: Fully Insured: employer pays a fixed monthly premium covering expected claims, administrative costs and risk charges. If actual claims are lower than expected the insurer keeps the difference. If actual claims are higher than expected the insurer pays the difference. Self Insured: employer pays a fee to a plan administrator who performs claim processing and securing discounted services from providers. The employer takes the risk of claim fluctuation. If actual claims are lower than expected the employer keeps the difference. If actual claims are higher than expected the employer is liable for the difference. 3

4 SUMMARY RISK CONTINUUM Employers need to understand the continuum to prioritize and balance their risk tolerance, financial flexibility and degree of control when selecting the appropriate funding mechanism. The left side of the continuum represents higher fixed costs with low risk / reward while the right side of the continuum represents lower fixed costs with higher risk / reward. Fixed Monthly Cost Maximum Cash Flexibility Fully Insured Minimum Premium ASO w/ Stop Loss ASO Minimum Risk Maximum Risk 4

5 MISPERCEPTIONS OF SELF-FUNDING Small employers have been hesitant to self-fund their health plan because they perceive it as appropriate only for large companies (> 500 Ees) Within the last two years there have been many new and innovative products specifically designed for employers with fewer than 250 employees. These products enable employers of all sizes to enjoy the benefits of self-funding while limiting the associated risk. Common Misperceptions 1. Significant Financial Risk 2. Budgeting for Claims 3. Administrative Burden 5

6 MISPERCEPTIONS OF SELF-FUNDING SIGNIFICANT FINANCIAL RISK What happens if we have a large claimant or an employee or dependent with a serious ongoing health issue? Reality: Individual Stop-Loss (ISL) Insurance Individual stop loss insurance limits the employer s liability to a set dollar figure per individual per policy year. Additional claims for that individual for the remainder of the plan year would also be reimbursed by the stop loss insurance carrier. Example: Employer A has $40K specific deductible Employee A has $85K hospital claim Employer A is reimbursed $45K Considerations: Choose the appropriate ISL dollar limit ($20K - $150K+); ISL reimbursement provisions under the contract 6

7 MISPERCEPTIONS OF SELF-FUNDING SIGNIFICANT FINANCIAL RISK How do we budget for claims expenses that change each month? Reality: Aggregate Stop-Loss (ASL) Insurance Aggregate stop loss insurance limits the employer s liability to overall claim fluctuation. The liability is expressed in terms of a percentage of total expected claims (e.g. 125%). If paid claims exceed expected claims by more than 25% the ASL will reimburse the employer the difference. Example: Employer A has Expected Claims of $1M Employer A has Maximum Claims of $1.25M Employer A has Actual Claims of $1.27M Employer A is reimbursed $200K Considerations: Choose the appropriate ASL limit (110% - 125% of Expected); ASL reimbursement provisions under the contract 7

8 MISPERCEPTIONS OF SELF-FUNDING ADMINISTRATIVE BURDEN Dealing with different entities will be confusing, cost more and coverage gaps may occur? Reality: Unbundled Services with a Consolidated Bill Administering a partially self-funded plan is no more difficult than a fullyinsured program. The carrier or TPA issues a consolidated bill for fixed costs, establishes account for claim payments, and coordinates services of outside vendors. Considerations: Is the Plan Administrator independent? Will timely plan services be available? What range of benefit services are available through the Administrator? Is the cost of plan services both reasonable and affordable? 8

9 ADVANTAGES OF SELF-FUNDING Companies with fewer than 250 employees can self-fund but will typically purchase stop-loss insurance. Stop-loss insurance limits the amount of claims expenses the employer s self-funded health plan is responsible for per covered individual per plan year. If claims are lower than predicted, the employer can save money directly compared to paying the set monthly premium of a fully insured plan. Stop-loss insurance policy puts a ceiling on the maximum amount the employer would pay in claims. Advantages 1. Pay for actual claims 2. Know what and where you are paying 3. Offer consistent benefits nationwide 4. Custom plan designs 5. Experience fewer surprises 9

10 ADVANTAGES OF SELF-FUNDING PAY FOR ACTUAL CLAIMS The ability to pay only for actual claims incurred by the employee is often the primary motivation for an employer to choose a self-funded health plan. If a smaller employer also invests in employee wellness programs and adopts consumer-driven health plans they have a greater opportunity to save more by helping to improve employee health and reducing overall claims. Advantages Opportunity to realize claims savings Explanation & Value Self-funded solution that includes strategies and programs to reduce overall claims can create and opportunity to realize claims savings quickly and directly A benefits administrator can provide access to a large network of hospital and health care professionals with competitive discounts without sacrificing quality or availability 10

11 ADVANTAGES OF SELF-FUNDING KNOW WHAT YOU ARE PAYING FOR Companies with fewer than 250 employees now are able to review client specific reports to assist them in understanding exactly where their healthcare dollars are being spent and the impact of wellness programs. This allows for more informed decision-making when considering benefit changes and provides clear direction in what to include in employee messages about health, wellness and any upcoming health plan changes. Advantages Client-specific claims reporting Explanation & Value Client-specific claim reports that contain actionable information enabling health plan design to meet the unique needs of the population today and into the future 11

12 ADVANTAGES OF SELF-FUNDING OFFER CONSISTENT BENEFITS NATIONWIDE Most self-funded health plans are not subject to state insurance coverage mandates. This allows an employer to offer the same coverage to employees in different states, allowing for consistency and easier administration. Also, self-funded health plans pay state taxes on stop-loss insurance premiums, compared to the full amount of premiums collected under a fully insured health plan. Advantages Same plan nationwide Explanation & Value A self-funded benefits administrator with a national footprint enables employers to offer the same coverage. ACA allows self-funded plans to select any State for minimum essential benefits. 12

13 ADVANTAGES OF SELF-FUNDING CUSTOM PLAN DESIGNS Another advantage of a self-funded health plan is the greater opportunity for smaller employers to tailor the health plan for their specific employees. State-mandated benefits are not required and an employer can tailor a plan design beyond what most fully insured carriers have available off the shelf. Advantages Tailored health plans Explanation & Value An expansive portfolio of health plan products each with numerous plan design options (benefits, deductibles, copays, annual limits, etc.) from which to tailor the health plan. 13

14 ADVANTAGES OF SELF-FUNDING EXPERIENCE FEWER SURPRISES With a fully insured health plan, it is typically 60 days prior to the effective date when the carrier delivers the renewal, before anything is known about current and future health care costs. For smaller employers (< 100 Ees), data to explain or justify renewal increases is typically not available. A selffunded health plan allows the employer to see how the health plan is performing throughout the year, so renewal changes are not a surprise. Advantages Experience fewer surprises Explanation & Value Accurate data through reports and financial statements about how the health plan is performing compared to expectations available on an ongoing basis. 14

15 STOP LOSS CONTRACT TERMS AND OPTIONS Coverage is often labeled based on the number of incurred months covered followed by the number of paid months covered. For example, with a 12/12 contract only claims that are both incurred and paid during the 12-month policy year will be covered. Due to provider billing and medical claim processing delays this is considered an Immature Policy. Run-In Contracts such as a 15/12 would cover claims incurred up to three months prior to the effective date. Terminal Liability contracts extend the paid period by a set number of months in the year of termination only, covering claims paid after the termination date. 15

16 STOP LOSS CONTRACT TERMS AND OPTIONS RENEWAL OPTIONS When renewing a Stop Loss policy, contracts are usually written on either a Paid or Rolling basis. Paid Stop Loss Contract covers all claims paid during that policy year, regardless of incurred date, as long as the claims were incurred since the policy date. Rolling Stop Loss Contract limits coverage to a defined number of paid and incurred months each year. A 12/18 contract covers claims incurred during the 12-month policy period that are paid during the 12-month policy period or in six months directly following. 16

17 STOP LOSS CONTRACT TERMS AND OPTIONS RENEWAL OPTIONS Example of a 12/12 First-Year Contract with a Paid Contract Renewal and Terminal Liability Coverage executed in Year Three Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun First Year Incurred Immature 12/12 Paid Second Year Incurred Paid Paid Third Year Incurred Paid + 3 month TLO Paid Employer begins on a 12/12 basis in Year One Upon renewal the contract becomes a Paid Contract In Year Three, they terminate and paid dates are extended for three additional months at the end of the policy year. 17

18 STOP LOSS CONTRACT TERMS AND OPTIONS RENEWAL OPTIONS Incurred Stop Loss Contracts are an alternative to the typical paid approach. Due to the lag in provider billing and claim processing it is possible to have claims incurred within one policy year and paid partially in that policy year and partially in the following policy year. Incurred contracts accumulate claims based on incurred dates eliminating claim payment timing from the Stop Loss equation. The Incurred contract also provides built in terminal liability protection in the final year of coverage. Incurred contracts match the Stop Loss liability with the way employers think about their medical liability, thus it is a natural choice for an employer converting from a fully insured plan to self insured. 18

19 STOP LOSS CONTRACT TERMS AND OPTIONS RENEWAL OPTIONS Benefits of Incurred Contracts (e.g. 12/18 Contract) Accumulates claims towards the pooling point based on the year the claims were incurred, rather than the year they were paid; Once the member hits the pooling point in a given year, all other claims incurred by that member (paid within 18 month period) within the year will be covered; Provides built-in Run-Out protection; Eliminates the need for future Run-In protection; Eliminates the first-year maturation adjustment; Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Incurred First Year Paid Second Year Incurred Paid 19

20 STOP LOSS CONTRACT TERMS AND OPTIONS COVERAGE VARIATIONS Stop Loss should not be viewed as a commodity where pricing is the only variable. Stop Loss coverage has many nuances which can have a dramatic affect on how a claim is covered under the Policy. In order to assess the true value of a Stop Loss Policy it is important to understand where gaps in coverage may exist: Unique Lifetime or Annual Maximums Unique coverage limits may be applied to specific conditions or in exclusions applied to individuals. Stop Loss coverage that contains separate maximums can result in increased claim liability for the employer Run-In Claims Caps Some Stop Loss policies limit the new carrier s liability for claims incurred prior to the new effective date. 20

21 STOP LOSS CONTRACT TERMS AND OPTIONS COVERAGE VARIATIONS (CONT.) Medical Plan Inconsistencies Stop Loss contractual provisions, eligibility rules or definitions that differ from those contained in the underlying medical plan can result in claim reductions or denials under the Policy for claims that are paid under the medical plan. Disclosure Requirements Some Stop Loss carriers may impose strict disclosure requires and contingent quoting that can be costly in the long run. Disclosure is a process whereby the carrier requires completion of a disclosure from identifying all known and emerging claims. Claimants not properly disclosed may result in unexpected claim liability. 21

22 STOP LOSS CONTRACT TERMS AND OPTIONS COVERAGE VARIATIONS (CONT.) Contingent Quotes Contingent quotes require updated claim information within days of, or sometimes after, the effective date. Based on updated information rates may be revised and exclusions or lasers may be imposed. Accountability and Service When choosing a stop loss carrier it is important to understand the required reimbursement process. It is also important to know who will be there to provide support, answer questions and make decision impacting your coverage. 22

23 STOP LOSS CONTRACT - UNDERWRITING Self-Insurance Feasibility and Cost Analysis NFP Actuarial Services The purpose of the analysis is to estimate whether an employer would have been better off financially had they become self-insured over the last months as opposed to fully-insuring their plan(s). The report is used as a framework for investigation into self-insurance going forward with quotes for network discounts, reinsurance, third-party administration and other factors. Information required to evaluate this approach include: Current Census Detailed past, current and proposed benefit plan summaries months of claims and premium data by month Large Claim (> $20K) data for last 12 months with diagnosis, prognosis and current status. 23

24 SELF FUNDING TERMINOLOGY Checklist Item Fixed Costs Specific Stop Loss Aggregate Stop-Loss Explanation & Value Consists of Administration Fee, Commissions, Individual Stop Loss Premium and Aggregate Stop Loss Premium. Paid monthly based on enrollment. Individual stop-loss insurance provides reimbursement in the event an individual plan participant has claims that exceed the ISL level during the contract period Aggregate stop-loss insurance provides a maximum claim liability for the entire group Expected Claims The dollar amount of claims that anticipated to be paid based on the plan s characteristics Maximum Claims The maximum liability for the plan based on enrollment, expected claims and a pre-determined risk margin 24

25 SELF FUNDING TERMINOLOGY Checklist Item Immature Rate Mature Rate Explanation & Value A reduced pricing structure reserved for the first 12 months of a plan. The rate is possible due to reduced claims liability in months one and two of a first year plan because of the claim lag. Arrangement typically results in a maturing factor added at renewal. Reflects a full 12-month claim liability Claims Corridor The area that represents the risk corridor above expected claims. The corridor is typically set between percent of expected. Paid Contract IBNR Self-funded contract providing stop loss coverage for all claims incurred under the life of the policy that are paid during the 12 month contract period. Incurred But Not Reported refers to claims that are in the lag period that occurs between its incurral date and paid date. 25

26 SELF FUNDING TERMINOLOGY Checklist Item Laser Minimum Attachment Reinsurance Carrier Run-Out Explanation & Value Stop loss carriers alter the ISL coverage for certain large ongoing claimants. The difference may or may not accumulate towards the employers aggregate claim liability. Some carriers do not mandate lasers; however, many will consider upon employer request to lower premiums. Provision sets a minimum claim attachment liability in the event the employer s enrollment shrinks. This allows the insured and the employer to control costs and risk and is based upon a percentage of enrollment at the time of renewal. Stop loss carrier providing ISL and/or ASL protection to the employer. In a TPA arrangement this is usually a third party and therefore is not fully integrated as under the Carrier arrangement. Refers to the period of time immediately following termination, during which all claims incurred prior to the termination date are being paid. Most contracts provide 3 to 6 months of run-out protection while some may allow up to months. 26

27 SELF FUNDING TERMINOLOGY Checklist Item State Premium Taxes TPA Contact Type Explanation & Value An assessment levied by a federal or state government on the net premium income collected. Premium taxes on self-funded plans are typically lower since only reinsurance premiums are taxed, whereas the whole premium in a fully insured plan is taxed. Refers to the third party/entity administering the plan. They may or may not coordinate with employer on other components such as provider network, DM, UM, Wellness Programs or Reinsurance. Refers to contracts seen in self-funded arrangements that are offered through TPAs in conjunction with a reinsurer. The first number refers to the Incurral Period and the second number refers to the Paid Period. Examples includes 12/12, 15/12, 12/15, 12/18, 12/12 and Paid. 27