On June 11, 2019, HAWK Advisers hosted a seminar where David Smith, Vice President of Risk Management and Compliance with EbenConcepts, provided an employer primer on self-funded health plans (including level-funded or balance funded) and discussed the risk, finance and compliance issues connected to self-funding.
Approximately 68% of the insured U.S. population are covered on private employer-based or individual health insurance policies. Employers interested in self-funding are motivated by the prospect of lower costs, greater plan flexibility, enhanced plan design and transparency of claims data. However, self-funded health plans are very complex; and our purpose behind the seminar was to help employers gain a better overall understanding of how self-funding works.
There are many things to consider as an organization before deciding if self-funding is right for you. It is important to first understand the basic differences between a self-funded health plan and a traditional health plan and to evaluate the advantages and disadvantages associated with self-funding.
Here are 10 interesting facts discussed during our recent seminar:
1. The top 20% of persons covered on employer-sponsored health plans typically account for 82% of the health care spending. The bottom 50% generally account for only 3% of spending.
2. There are two types of stop loss insurance that must be purchased with a self-funded plan: specific stop-loss and aggregate stop-loss. Specific stop-loss sets a cap for claims to be paid per person covered on the plan. Aggregate stop-loss sets a limit for which total claims cannot exceed.
3. Higher specific deductibles can be placed on certain individuals who may be determined to be too high risk for the standard specific deductible offered to the rest of the group. This is called a laser.
4. ERISA does not regulate employers. It protects and regulates plans. However, it can be difficult to differentiate between the two given that the individual making key decisions for the health plan is an employee of the employer.
5. ERISA applies to all employee benefit plans except for governmental entities, churches and church related entities, and self-employed individuals.
6. It is key to note the difference in terminology under ERISA regarding the plan administrator role. A Plan Administrator (PA) in its formal role under ERISA makes discretionary decisions for the plan. A plan administrator (pa) manages day-to-day issues for the plan but has no real authority to make decisions related to the plan.
7. Under a self-funded health plan, it is important to understand the differences in terminology between the billed amount, allowed amount, and paid amount on a claim. The “billed amount” is what the provider initially bills for its services. From there, network discounts and claims scrubbing for duplicate or billing errors occurs, and an “allowed amount” is established for the claim. The difference between the “billed amount” and the “allowed amount” can have a huge impact on costs – this is why network discounts matter. The “paid amount” is what the health plan actually pays, and it’s what counts towards the specific deductible.
8. The Summary Plan Description (SPD) is a summary of the Plan Document that must be updated every 5 years if revised, or every 10 years if not revised. The SPD is a requirement of ERISA regulated plans regardless of group size.
9. A fiduciary as defined under ERISA is a person (individual or entity) that has responsibility to act in the best interest of the benefit plan and its participants. Fiduciary duties begin as documented by the employer, but liability could continue even after responsibilities are ended.
10. Under a self-funded health plan, employers should work with a consultant who conducts a regular review of their claims data. Claims data should be monitored closely for big claim months, out of network claims and related costs, division cost differences, and analysis of how claims are running against the aggregate limit. This helps the employer to be aware of potential issues during the year and to be prepared as renewals approach.