Fully Insured Health Plans
In the traditional fully insured plan, the employer pays a monthly premium to an insurance carrier to provide benefits and pay claims for its employees. Benefits are confined to that carrier’s products, giving the employer little flexibility to offer a plan tailored to its own employees. The insurance company assumes all claims risk, but retains, as profit, any difference between premiums paid by the employer and claims paid.
It is important to note that Fully Insured Qualified Small Employer groups (with less than 50 employees) are guaranteed issue and community rated, with no medical underwriting. If submitted on a timely basis, new Small Employer groups with a January 1st effective date do not have to meet employer contribution or participation requirements.
Self Funded Health Plans
Employers can decide to take the risk of their plan on themselves for a possibility of savings over fully insured health plans. For an employer to be Fully Self Funded, they must have a large cash reserve at their disposal and are typically very large employers (over 1500 employees). The employer has much greater plan design flexibility, cost controls and cash flow improvement by design. The employer has fixed costs every month including renting provider networks, Pharmacy Benefit Manager, claims processing / plan administration (usually an insurance company or Third Party Administrator), broker/consultant fees, etc. The variable costs are reliant on the claims experience of the group. When the claims are high, the employer has high costs but when claims are low, the employer gets to keep all the savings. If the employer was to be fully insured, the insurance company would keep all of the savings as profit.
Partially Self Funded Health Plans
Under the partially self funded benefit plan approach, the employer enjoys much greater plan design flexibility, cost controls and cash flow improvements by self-insuring the expected costs (those costs that are easy to budget) and allowing an insurance company to assume the unknown risk (those costs that are virtually impossible to budget). Any funds ear-marked for claims, but not spent by the plan are retained by the employer – instead of becoming the insurance company’s profits.
In most partially self-funding scenarios, the employer selects a Third Party Administrator (TPA) to handle plan administration and purchases three insurance contracts. The first contract, known as Specific Stop Loss Coverage, stipulates that the employer will pay for all covered health care expenses for each individual up to a specified dollar limit. Covered expenses over this dollar limit (deductible) are paid by the re-insurance carrier up to the plan maximum. The second contract, known as Aggregate Stop Loss Coverage, sets a dollar limit (stop loss point) of overall claims for which the employer is responsible. Covered expenses over this dollar amount (attachment point) are paid by the re-insurance carrier. The third contract, known as Monthly Accommodation, protects the employer’s cash flow by having the re-insurance carrier provide an interest free loan to the plan to pay for any claims above the expected monthly amounts.
All plans are medically underwritten.
Level Funded Health Plans
Primarily designed for small to mid size employers, Level Funded plans are a hybrid style partially self funded plans which incorporate some features of fully insured plans. Each month the employer pays the fixed costs, along with 1/12 of the maximum annual claim costs. There are no additional charges for claim payments above the maximum amount. Once all claims have been paid for the plan year, any unused dollars in the claim fund are refunded or credited to the employer. With most plans, the employer can switch carriers at the end of the contract year without facing any additional costs.
The method in which refunds are returned or credited to the employer can vary dramatically between different carriers. Methods range from a 100% refund of unused claim fund dollars to administrative credits equal to a portion of the unused claim fund dollars. Some plans only offer the administrative refund credit if the group renews for a new contract year. We typically only write plans that offer a 100% refund of the unused claim fund dollars.
All plans are medically underwritten.