As we approach the time when many employers start preparing for their upcoming renewal, there are a couple of options that are frequently overlooked. Traditional plans are fully insured, meaning that the health insurance company takes all risk for claim and administration expenses. As an alternative, partially self-funded plans can often provide lower rates without extraordinary risk.
Partially Self-Funded Plans
There are many TPAs (third party administrators) and insurance carriers, including the traditional ones, which can offer these types of plans. Since these are partially self-funded, they are regulated by ERISA (Employee Retirement Security Act) and do not need to meet all of the requirement of the ACA. The most important difference is that the insurance carrier will use medical information to assess the risk and provide a quote. This is different from traditional insurance, which is rated primarily on age and location of the members of the group. Most small employers (less than 50 employees) will be required to have all employees answer confidential health questionnaires. The confidential health information will NOT be shared with the employer, in order to protect the privacy of the employees.
The rate illustration will include different categories: administration, stop loss and claims. Essentially, the TPA/insurance carrier is showing all the components so that you can see exactly how the premiums are being allocated. The rates are typically illustrating the maximum liability so you can budget without worrying about additional exposure. The good news is that if your group’s claim expenses are less than projected, there is an opportunity for you to receive a portion or all of the excess claims funding back!
Reference Based Pricing
Another fairly new funding option is Reference Based Pricing. These types of plans start with the model above in that they are also partially self-funded. The difference is in the method in which providers are reimbursed. Traditional fully insured and most partially self-funded plans use a named provider network to provide the discounts for claims. As long as you stay in-network, you receive the negotiating discount. With Reference Based Pricing, there is no network. Instead, medical providers are reimbursed a percentage above the Medicare rate. Simple as that! The idea is that this simplifies the process for employees (who no longer need to wonder if a certain provider is in-network) and for providers, it simplifies the billing and reconciliation process.
For years, our small group clients (under 100 employees) have wondered how the insurance carrier calculates the renewal costs. With a partially self-funded plan, you will have much greater transparency through aggregate claims reporting, but not too much to risk knowing any personal claims information. FBN
By Ed Gussio
For more information, please call the Crest team at 928-526-5691.
For more information on how your business can stay on the leading edge of employee benefits, contact the team at Crest Insurance in Flagstaff 928-526-5691.