SelfFunding 101

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Self-Funding 101
Presented by Joe Hernandez
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A Guide to Self-Funding

• This guide to self-funding provides a
  comprehensive guide to self-funding employee
  benefits. It describes the differences between
  insured and self-funded plans, compares the pros
  and cons of each, and helps you decide if
  self-funding is the right choice for financing
  your organizations health care benefits.
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• A Guide to Self-Funding assumes that you will
  carry stop-loss insurance, which limits the risk
  your firm undertakes when choosing to self-fund.

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Stop-Loss Insurance

• Employers typically carry stop-loss insurance on
  their self-funded health care benefit plans to
  reduce the risk of large individual claims or
  high claims for the entire plan. The employer
  self-insures claims up to the stop-loss maximum
  exposure, which is the dollar amount above which
  claims will be paid by the stop-loss carrier.
  There are basically two types of stop-loss
  insurance individual/specific and aggregate.
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• Individual/Specific Stop-Loss Insurance
• Specific stop-loss protects the employer against
  large, individual health care claims.
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• Aggregate Stop-Loss Insurance
• Aggregate stop-loss insurance protects the
  employer against high total claims for all plan
  participants.

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About Self-Funding

• What is Self-Funding?
• A self-funded, or self-insured plan, is one
  in which the employer assumes partial financial
  risk for providing health care benefits to its
  employees.
• The employer decides on a plan of employee
  benefits, which can be similar to or identical
  to the employers current fully insured plan, or
  the employer can create whatever benefits it
  desires.
• The employer funds the risk up to a certain
  level where a Reinsurance or
• Stop-Loss Insurance carrier is brought in. The
  Stop-Loss is designed to limit the employers
  loss to a specified amount to ensure that large,
  or unanticipated claims, do not upset the
  financial integrity of a self-funded plan. The
  amount of risk to be insured is a function of the
  employers size, nature of its business and
  tolerance for risk.
• A Third Party Administrator (TPA)
  administers the plan. Its responsibility
  includes maintaining eligibility, customer
  service, adjudicating and paying claims,
  preparing claim reports, plus arranging for
  managed care services such as network access and
  case management.

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About Self-Funding

• Is Self-Funding Common?
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• Most employers with more than 200 employees
  self-insure some or all of their health
  welfare benefits. Self-Funding for employers
  with as few as 5 employees is also prevalent, but
  these employers enroll workers under a
  fully-insured high deductible plan unlike the
  larger employers.
• What benefits can I Self-Fund?
• Medical
• Dental
• Prescription Drugs
• Vision Care
• What benefits should not be Self-Funded?
• Any life insurance benefits, including ADD and
  travel accident
• Long-term disability LTD (unless coverage is for
  a very large group)

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About Self-Funding

• Self-Funding A Comparison to Fully-Insured
  Plans
• Everything that is provided in a conventionally
  fully-insured program is duplicated in the
  partial self-funded plan. Everything that the
  insurance company does when it offers a
  conventionally insured program takes place in
  the partially self-funded program.
• The difference is that with the self-funded
  plan the employer holds the cash needed to fund
  benefits, and instead of paying the fully
  conventional premium to the insurance company,
  only a portion of the conventional premium is
  paid to a reinsurance carrier.
• The employer purchases re-insurance for
  protection, holds the remainder of the
  conventional funds (expected claim funds),
  invests them, segregates them if desired, or
  uses them for general business purposes until
  they are needed for the funding of claims.
• The employer retains and keep the funds when
  claims do not materialize, hence making a
  profit.

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About Self-Funding
Why do employers Self-Fund?

• There are eight primary reasons employers
  self-fund benefits
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• Cash flow advantages
• Reduced insurance overhead costs (no longer pay
  Insurance Company
  stockholders)
• Reduced state premium taxes
• Elimination of state mandated benefits
• Control and flexibility of plan design-benefits
  
• Control of Reserves-Return of investments on
  reserves
• Improved employee satisfaction
• Transparent changes at health plan renewal

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About Self-Funding

• More reasons why employers Self-Fund
• Even if an employer had good experience, the
  insurance company will still pass on a renewal
  rate increase based upon the insurance companys
  pool of thousands of groups. You are not truly
  rated based upon your claims experience and can
  be treated unfairly.
• With Self-Funding your renewals are based on
  YOUR companys claims experience, and it is not
  based on thousands of other companies that have
  no relation to your company or industry. You, not
  the insurance company, enjoy the advantage of
  favorable claims experience. You keep the
  savings.
• Perceived Disadvantages of Self-Funding
• Your own poor current claims experience means
  that the plan will be costly.
• But less costly than an insured plan, as you are
  not paying for taxes and profit in addition to
  insurance coverage
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• Budgeting the Plan will be difficult.
• Prior experience guides your financial
  commitment and stop loss insurance guarantees
  performance
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• Termination of the Plan may be difficult.
• Stop loss coverage is structured to pick up
  claims incurred in, but reported after the end of
  each plan year
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• There is added fiduciary and legal
  responsibility.
• JHC Administrators provides advice and guidance,
  when help is needed and Federal ERISA laws which
  govern self-funding are less restrictive and
  overbearing than state insurance regulations

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Use of Contracted PPO Networks

• One important element that a TPA will include in
  its services to the employer is that of ensuring
  a host of solid arrangements for the groups use
  of contracted PPO networks. This is critical for
  several reasons
• First, any liberal use of low cost preferred
  providers will allow the employer to
  substantially stretch its benefit dollars.
  Limited benefit dollars spent on covered services
  simply go much further when the employer is not
  paying billed charges but rather only
  negotiated rates after discounts.
• Second, because the contracted PPO network is
  open, broad and widespread than all employees
  and dependents will have incentives to access and
  use preferred providers. Thus, not only will the
  employer group save a lot of dollars up-front but
  employees too will save on their out-of-pocket
  co-payments, coinsurance and/or deductibles.

Contracted PPOs include
In addition to contracted PPO networks, JHC
Administrators is also affiliated with United
Resources Networks (A United HealthCare Company)
Centers of Excellence and use of acclaimed top
tier facilities with deep discounts for
transplant, cancer and newborn care. This
affiliation caps the risk for catastrophic care
and, hence, reduces the reinsurance rates.
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United Resource Networks Products
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Use of Pharmacy Benefit Management Experts

• Pharmaceutical Benefit Programs
• With rising prescription drug costs it can be
  unnerving that an average employers prescription
  drug plan can be the cause of almost 25 of the
  cost of the companys group health plan.
  Fully-Insured carriers pass along minimal
  prescription drug discounts to employers and keep
  any pharmaceutical rebates. The result is larger
  claims experience, which then result in higher
  rate increases.
• Through the judicious use of Pharmaceutical
  Benefit Managers (PBM), a Third Party
  Administrator will enable its clients to receive
  the strongest prescription drug discounts in the
  country, reducing the employers prescription
  drug costs, and hence resulting in lower costs
  for the group health plan.

PBMs used include
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Use of Utilization Review Experts

• Utilization Review (or Utilization Management)
  is a process for monitoring the judicious use and
  delivery of services to control health care
  costs. The objective is to deliver medical care
  on a timely basis in the most appropriate setting
  at the highest level of quality at the lowest
  possible cost. Medical expenses are controlled
  and limited by objective expert reviews which
  include
• Pre-certification for admission to a health care
  facility using accepted standards that are
  case- specific for covered benefits
• Continuous analysis of the reasons for the
  patient to remain in the health care facility
  and at what appropriate level of care
• Discharge planning of post acute care facility
  and planned use of resources after a projected
  date of release of the patient
• Retrospective review of paid claims for
  accuracy, completeness and compliance with
  applicable contract terms and conditions
• JHC Administrators has selected Hines
  Associates for its proven expertise in fair and
  effective Utilization Review. This firm is fully
  accredited by URAC, one of the premier
  accreditation organizations in the United States.
  This respected UR firm was formed in 1987 and is
  headquartered in Illinois with 25 offices
  nationwide. Hines Associates is not a PPO and
  does not pay claims thus eliminating any
  potential conflict of interest. It acts strictly
  as an unbiased third party responsible for making
  medical necessity decisions. This type of
  impartial expert has been proven to contain costs
  without compromising quality of care for a host
  of satisfied clients for nearly 20 years.
• JHC Administrators is pleased to bring this
  firms expertise and know-how to the table as yet
  one more key component to help solve self-funded
  employer issues dealing with the ever-escalating
  costs of care.

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Making The Decision to Self-Fund

• How do I decide if I should self-fund some, or
  all, of my employee health benefits, and what
  stop-loss insurance is right for my plan?
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• Assess the volatility of claim experience for
  the past three years.
• Obtain stop-loss quotes at several different
  levels.
• Compare the costs and risks of the different
  quotes against the insured premium cost.
• Weigh the self-funded plan advantages of
  flexibility and lower average cost versus the
  increased risk and associated greater
  responsibilities.
• Choose the optimum solution based upon your
  analysis.
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• Probably the most important step you should take
  to assure that you make the best decision is to
  have an experienced professional assist you. JHC
  Administrators can answer your questions and
  assist you with your decision to self-fund or
  even partially self-fund your companys health
  benefits plan.
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• JHC Administrators welcomes the opportunity to
  help your organization examine its plan design(s)
  and make recommendations for improvement.

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No Chance of Winning versus HOPE!
Fully Insured
Self-Funded
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Client Testimonials
So what do our clients actually say about us?
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Client Testimonials
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Client Testimonials
Carmen Camarillo, Human Resources Administrator,
City of Port Hueneme From where I sit the
employers perspective they take the weight off
my shoulders I dont have to worry or think
about it. Basically, I pass out their business
cards and ask folks to just call them directly
I dont feel that I have to follow-up with calls
I feel confident the job will get done right by
them. Our mission statement, which is to provide
excellent customer service this is our 1
priority and they provide that for us they help
us meet our mission. They really fight for you!
Whether its open enrollment or having good
market sense in negotiating a rate they know
our needs and employees and fight for the best
deal fight for the best rates they try to get
us the best deal possible. The value is not in
dollars. It is in personnel savings not having
to hire one more person. I know from personal
experience it takes more than a couple of calls
to handle an issue your company saves us from
having to do that and make all those calls that
take precious time. The bottom line is that the
information we need, whether its on insurance
rates or customer services or prior
authorizations or whatever, they always respond
in a timely manner and with great follow-up
they make it easy to continue service with them!
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Client Testimonials
That says it all we really work hard to
provide more than our valued clients expect!