Self-funded group health insurance – What you should know
The benefits and drawbacks of fully self-funded group health insurance
Freedom from ACA-compliance headaches. Saving on annual premium increases and keeping the money you’d give to an insurance carrier monthly – in a cash account – that you control and gain interest on. Ability to customize health benefits to meet your staff’s needs. These are just a few of the benefits of a self-funded plan.*
This article was created to assist NGOs and other development agencies as well as charities, non-profits and other groups such as faith-based mission organizations and sending agencies, with staff residing overseas that are considering self-funding their international health insurance. We don’t usually refer to self-funded plans with stop-loss or a reinsurance policy as “partial self-funded plans” which we think is confusing, since partial self-funded can cover a range of options. All self-funded plans should have some form of stop-loss protection, so we use “self-funded” to refer to those health plans that include reinsurance and “fully self-funded” to refer to those who completely underwrite their own health benefits (i.e. no reinsurance).
* The results cited here are based on the 10+ year track record of our consultants. Good Neighbor Insurance was getting ready to offer self-funded options for overseas businesses when we formally partnered in January 2014. We expect to see similar results by clients following their plan design and recommendations.
WHY SELF-FUNDING MAY BE THE ANSWER TO THE RISE IN HEALTHCARE COSTS
Self-funded group health insurance is being hailed in the media as the business solution to growing healthcare costs, as well as the greatest answer to controlling costs and saving your organization money. Yet self-funded health plans are still relatively uncommon among international organizations and can be risky. Therefore we recommend organizations proceed with caution. We’ll explain more below, as well as through a series of articles on this site especially focused on issues related to self-funding international health insurance.
WHAT ABOUT CATASTROPHIC CLAIMS?
Self-funded health plans almost always purchase a reinsurance plan that covers each employee or covered dependent after a certain set amount, and often the total organization after a set number is spent in a year. These amounts are usually set by the organization based on the amount of risk/reserves the organization is comfortable with/has in their account.
Key benefits for organizations with workers overseas self-funding their international health plan:
Self-funded plans have many advantages over traditional fully-funded insurance – For larger groups that have larger number of units (staff, family members) to spread risk. Since they act as their own insurer and collect health insurance premiums, paying their own claims rather than giving that premium to an insurance carrier, they are able to grow/control those reserves. If their group is young and relatively healthy, as many groups with staff overseas are, this can be a great asset. And they avoid annual rate increases, and many ACA-compliance regulations and state regualtions associated with the new health mandate. They also enjoy certain tax benefits based on their location.
Self-insured companies typically avoid the largest risks of huge claims through a reinsurance policy sometimes called a “stop-loss” policy, which is usually at a fraction of regular employee insurance, and is used to protect the organization against catastrophic claims or kick in after a certain dollar amount is reached to protect the organization’s reserves.
Use of a TPA (third-party administrator) that handles/pays claims on behalf of the organization, and the medical claims themselves, are the only other large expenses associated with self-funded plans. (Organizations should also consider the amount of time spent for administration as an expense, since self-funded plans require much more hands-on time doing administration, controlling costs, taking initiative on claims, approving payouts, and more)
They also automatically include new employees without any underwriting (since they are acting as their own insurance carrier) and have much greater flexibility to customize their healthcare benefits to suit their employees. This is especially helpful for groups overseas since different levels of benefits can be set up to maximize care outside the USA to avoid more expensive claims/payouts.
A key advantage is that you control your own reserves, and there are no more premiums, which means money can add up quickly. This reflects good stewardship and is should be considered by the Board of Directors of any larger non-profit or international group.
Controlling costs is also good for employees/overseas staff whether they pay for their own insurance, or it is covered as a benefit through the organization. Self-funding allows you to “level off” costs so that reserves pay for yearly healthcare increases, rather than paying an increasing amount by both employer and employee/contractor.
Regardless of where your employees live and for how long, you can create consistency in benefits with a self-funded plan.
Organizations using self-funding can also create “classes of benefits” easily with different benefits and/or costs assigned to each – Such as 100% coverage to U.S. staff to help offset their pay/support levels, or no coinsurance if medical treatment is handled outside the USA.
The drawbacks of self-funded health plans:
You have not only full control, but assume all the risks of your staff’s medical needs. Breast cancer, premature babies, any other type of cancer or ongoing condition, not to mention heart attacks, strokes, dialysis, ventilators, diabetes, and treatment including drugs, therapies, tests, and more can quickly add up and equal 75% of U.S. medical costs. Especially if this means workers having to fly repeatedly to a third location, or back to the USA for treatment. (See http://www.forbes.com/sites/davidwhelan/2012/02/25/the-10-most-expensive-common-medical-conditions/)
For groups with younger members, two premature “million-dollar” babies in one year, or back-to-back, can tax any organization’s reserves.
This becomes a greater risk due to “lasering,” where a stop-loss company decides to shift the cost of the sickest workers back onto the organization when annual renewal comes around, by rejecting them from coverage. Is this possible? Yes it is. And without good plan design and strategies to protect you, your organization could find itself walking right into a mounting financial crisis, trying to pay for a chronic ill employee, while trying to get traditional health insurance again at the worst possible time – In the midst of a nightmare claim.
Care should also be taken as many good, highly recommended TPAs will not have experience working internationally, at least where many of our clients operate, and so you may find yourself largely on your own, making “judgement calls” in regards to your employee’s health.
Additional administrative risk: If you don’t administer your plan right, you could be in breach of fiduciary duty in regards to privacy concerns and your employees claims, since you will have access to more of their information.
Group considering self-funding their insurance should have at least 100, or even 200 or more, full-time individuals or family members on their plan to make it feasible. For some groups this may mean using a “partially self-funded” (partial self-insured) plan for a time as you build reserves, and grow to a point where we can help you transition into a self-funded plan. If you’re not sure, contact us and we can do an actionable analysis.
You need to consider your reserves to start, as well as your risk tolerance. Reinsurance is usually set very high for one-time events, and maximum yearly cost before it takes over. You are far more protected under a partial insured plan than being self-insured, especially in the case of chronic illness and/or multiple events happening in the same year that are ongoing.
Additional staff/work involved for your H.R. and finance departments. This is often overlooked or minimized by most groups we have come in contact with. Without experience self-funding, or being in a partial self-insured plan, it is best to ask others about their experience before undertaking self-funding.
Plan design becomes an important part of any self-funded plan if you are to keep costs down and maximize savings. Most organizations need help retraining their overseas staff to understand and use self-funded benefits wisely without costing the organization a lot of money via claims and/or overuse. This is where we can help. Our expert consultants have had many years working with large organizations as well as smaller groups, and have had great success in creating and designing plans that work.
As stated elsewhere, reserves also need to be ‘protected’ from other uses lest a company find itself in the same boat as the U.S. Social Security Administration.
So-called “fully self-funded plans,” where the company takes on all risk without relying on reinsurance or stop-loss insurance, are never typically recommended. Indeed we are not sure if, in the many, many years working in insurance, we have ever had a group large enough and diverse enough to recommend this option to.
The savings associated with a self-funded plan cause us to encourage self-funding where it makes sense. And those savings are likely to grow. Being free of a system still evolving in response to the unseen impacts of the new PPACA health law is also a great benefit being touted by many articles on the internet.
We highly recommend self-funded plans for organizations that qualify, with these caveats:
a.) Understand their risk tolerance and have a great plan design in place
b.) Have adequate reserves/protected account from other “needs”/crises
c.) Are working with an internationally recognized TPA
d.) Have a plan in place to mitigate stop-loss / reinsurance lasering
e.) Recognize the additional work involved in administering your own plan
Key to any self-funded plan is plan design, a good international TPA, strong reserves and experience (and enough workers for self-funding to make sense – Since your baseline is that number of employees compared to those sick or filing anything other than routine claims). International organizations are unique, but a fast growing market for self-funded insurance as they seek to be wise financially, and good stewards of donor’s money. Our experts have a proven track record of helping organizations, and have years of experience in plan design.
Good Neighbor Insurance and our website, www.selffundedhealthinsurance.com, can advise you on what self-funding options make sense, how to transition, and how to create a plan design that actually increases your employee benefits, while keeping your overall expenses within the set amounts based on your risk tolerance.
Whether you are currently self-insured, looking for a way to cut down on claims, looking for a new TPA, or seeking to see how much you could save in a self-funded plan – We’re happy to help.
As stated above, our current clients are very happy and can give you a recommendation. Their happiness is due to our proprietary plan design and knowledge of both the market and working with international groups, which few are truly qualified to do. We would love to put this experience to work for you. Call us to set up a free consultation or fill out our census at:
http://www.gninsurance.com/group/Request_A_Group_Insurance_Quote.asp so that we can begin to understand your needs and goals.
We have helped hundreds of international non-profits and businesses like yours over the last 16+ years and are well-known by our carriers, reinsurers, and by organizations just like yours worldwide. When we explain our ability to create a plan design for you, what you will save this year and how we set protections in place to reduce risk, we believe you’ll be glad you called, and will refer other to our services as well.