Self-Funding Keeps Growing

Self-FundingWith time running out on an opportunity for Congress to repeal and replace the Affordable Care Act and open enrollment season approaching, thousands of small and mid-sized businesses are likely bracing for another round of premium increases. A growing number of employers, however, will choose to avoid the uncertainty plaguing traditional group insurance markets by moving to a self-funded health plan – an option that provides an opportunity for savings and far more plan design flexibility.

Healthcare benefits continue to be perhaps the biggest obstacle facing small and mid-sized businesses. The Self Insurance Institute of America reports that between 2011 and 2016, the average annual deductible for employer-sponsored plans increased by 49% and the percentage of firms with fewer than 200 employees still providing health benefits fell from 68% in 2010 to 55% in 2016.

Self-funding on the other hand, has proven to be a far more responsible alternative for employers, enabling thousands to not only use their health benefit plan to attract and retain high quality employees, but to do so at an a affordable cost. While self-funding has long been a staple for the nation’s largest employers, nearly a third of companies with 200 or more employees now offer at least one self-funded option.

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SPBA Releases Industry Update & 2018 Forecast for TPAs & Self-Funding

The article below was published on October 17, 2017 by PRWEB, written by Chevy Chase, MD.

The Society of Professional Benefit Administrators (SPBA) has released its State of the TPA Industry & Forecast for 2018. Developed annually for the last 37 years, this report shares current happenings in health benefits and self-funding along with projections for the future.

dgb-spba-blogIn preparing for the year ahead, the Society of Professional Benefit Administrators (SPBA) has released its State of the TPA Industry & Forecast for 2018.

Fred Hunt, SPBA’s active past president, has been writing this report annually for the past 37 years with the intent to shed light on what is happening with third party administrators (TPAs) and the self-funded industry.

As with years past, the 2018 Forecast shares a candid perspective on current issues affecting the health benefits landscape as well as projections for the future. In it, Hunt describes the state of the TPA industry as “very good” amid the uncertainty in health care regulation the U.S. is facing and the ever-changing compliance requirements.

Some of his main projections include:

  • TPA growth – TPAs are positioned for a growth expansion as employers will continue to move to self-funding for the ability to design and fully customize health plans that fit their specific work populations.
  • State-level health care – With solutions for health care being debated, there will be more interest in exploring a state-centric approach as the 2018 Congressional and 2020 Presidential elections draw closer. Education will become key as careful consideration must be taken to address the many complications that would arise for the large number of companies with multi-state operations and plan participants.
  • Increase in “well-being” services – Employees will be looking for more benefits that enhance their well-being – things like wellness solutions (whole health and niche), student loan assistance, pension management, work-schedule management, etc. They will also rely on employers for help in overseeing these solutions.

“Fred has become such a trusted source for these forecasts based on his many years of experience in the self-funded industry and the fact that he stays so well-connected to regulators, policymakers and TPAs,” explained Anne Lennan, SPBA president. “He has a unique vantage point as he sees what is happening with health benefits from so many different angles.”

In sharing the 2018 Forecast, SPBA also includes background on the history of self-funding, why these health plans have become so widely adopted among companies of all sizes and formats and how ERISA serves as the main source of regulation. It also provides definitions of TPAs, including comprehensive service, specialty, minimal, ASOs and TPAs-of-convenience.

“Year after year, these forecasts provide a helpful, insightful look at the big picture for TPAs and self-funding,” Lennan said. “SPBA is happy to make them available to the public.”

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Legislators forsake $60M in savings by rejecting self-insurance

The article below was published on August 19, 2017 by Green Bay Press-Gazette, written by Mike Ferguson.

Wisconsin lawmakers are at an impasse over the state budget. Senate leaders can’t agree with their Assembly counterparts on how to fund road repairs, schools, and various agencies.

Resolving this dispute would be easier if lawmakers hadn’t rejected a reform of the state’s costly health insurance program. Switching state employees and their families to a “self-insured” plan could have freed up tens of millions of dollars.

Under such a plan, the state would have covered employees’ medical expenses directly, instead of paying a traditional health insurer and hoping premiums don’t increase. Cutting out the insurance company middleman could have saved millions and enabled Wisconsin to offer higher quality benefits to government workers. It’s a missed opportunity — one that lawmakers should reconsider next year.

The purpose of health insurance is to minimize financial risk. Individuals’ health spending can fluctuate from one year to the next. That’s why people pay premiums to insurers to protect themselves against costly, unpredictable events.

Organizations with hundreds of thousands of employees like the state of Wisconsin don’t experience such fluctuations. They have a steady mix of young and old workers, and healthy and sick ones, making expenses for the entire organization predictable.

The risk of a spike in expenses is virtually nonexistent. So it makes sense for employers like Wisconsin — which offers health coverage to 250,000 government workers and family members — to pay for care directly rather than fork over premiums to traditional insurers.

Budget analysts predicted that self-insuring would save Wisconsin at least $60 million over two years, according to the Wisconsin Group Insurance Board. Private research firm Segal Consulting found that switching to a self-insured plan would save the government $42 million annually.

Despite these projections, Wisconsin’s politicians rejected self-insurance. Instead, the state will continue buying traditional premiums from 17 local insurance carriers.

Some legislators worried that shifting state employees onto a self-insurance plan would deprive traditional insurers of business and force them to raise premiums on other large organizations.

That’s akin to arguing that taxpayers should continue wasting millions of dollars on inflated premiums to subsidize coverage for other large organizations.

Others argued that a switch to a self-insured plan is risky, given the uncertainty surrounding Congress’s attempts to repeal the Affordable Care Act.

But this uncertainty is actually an excellent reason to switch. Self-insured organizations don’t have to worry about premiums swinging wildly or facing a raft of new compliance burdens. Self-insurance is governed by a 40-year-old federal law that will be largely unaffected no matter what happens in Washington.

Instead of addressing the rising health care costs that drive up premiums, Wisconsin lawmakers have decided to shift those costs onto workers in the form of higher deductibles. They’re also raiding the state’s rainy day fund to help pay the coming year’s premiums. This isn’t a strategy for cutting costs.

Twenty-nine states already self-insure their employees’ coverage. Nineteen others self-insure at least some of their health plans. In fact, Wisconsin has been self-insuring its employees’ dental and pharmaceutical benefits for years with excellent results.

Private companies further prove the model’s effectiveness. Fifty-eight percent of all private sector employees are enrolled in self-funded plans. Businesses that self-insure save up to 12 percent on health expenses.

It’s unclear why state lawmakers left tens of millions of dollars on the table by rejecting self-insurance this budget session. But they’ll have the chance to correct their mistake during next year’s inevitable budget crunch.

For the sake of taxpayers and state employees, let’s hope they take it.

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Stop Loss Legislation

stop-lossIn New York, industry efforts to support self-funding for smaller groups have led to legislation extending the grandfathering of existing stop-loss policies for groups of 51 to 100 for an additional year, through January 1, 2019.

Other legislation impacting access to stop-loss insurance products by smaller groups has taken effect in Minnesota and is slated to become effective in New Mexico on July 1st. Attachment points are still being discussed in New Mexico and it appears that new opportunities for smaller groups may emerge in Minnesota as well. Since our last newsletter, legislation prohibiting small group stop-loss failed to advance beyond committee debate in the State of Maine.

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Leveling the Self-Funding Field

The article below, titled Leveling the self-funded field, written by Robert Bull, was originally published by Employee Benefit Adviser on July 18, 2017.

Technology is changing every aspect of the way businesses operate — and that includes health plan self-funding.

It used to be that self-funding was limited to only the largest companies that could afford the manpower to either administer their own plans or develop their own proprietary administrative software. Today, new data technologies are leveling the playing field, making it affordable for virtually all employers to self-fund.

For too long HR teams have shied away from self-funding due to the perceived administrative burden. But technology has removed this barrier, making it easier to track eligibility and generate billing information. What used to be a painstaking manual process has been automated, and HR teams at self-funded companies can now provide richer benefits at a lower price. A good healthcare plan goes miles in attracting and keeping quality employees — and ensuring that they’re productive by minimizing absenteeism due to a lack of care for either themselves or their family members.

self-funding'Here’s what to look for when shopping for a top-notch self-funding solution:

1. The ability to consolidate information and manage all healthcare-related data from a single system. Most employers deal with multiple service providers — stop loss, vision, pharmacy, dental, medical, wellness, and third-party administrators, just to name a few. But they should insist that all of the relevant data is consolidated onto one system. For one thing, it’s much simpler and less time consuming to administer and pay all of their providers from a single source. For another, it takes much less time and effort to master a single application — as opposed to having to learn the ins and outs of each provider’s software.

When the data from multiple vendors are integrated onto a single platform, the time-consuming process of having to reconcile across providers every month is eliminated. The plan’s administrator can instantly determine counts and claims. Likewise, multiple payment processes can be eliminated in favor of a single, consistent payment method.

Best of all, HR can take all this data, which reflects employee behavior and everything related to treatment, and use it for predictive modeling. With that level of insight, the employer can develop a plan that truly meets its — and its employees — needs.

2. Data transparency. For an employer to take on the added risk of self-funding, it needs to be able to closely examine its data and determine the underlying trends. Without pricing and transaction transparency, it is impossible to perform a meaningful cost analysis.

As opposed to fully-insured plans, where the data is the property of the insurance carrier, with a self-funded plan the employer owns the plan’s data. And once the employer can access its claims, demographic and pricing information, it can make accurate decisions about what is best for the company and its employees.

The data can also be used to influence employee behavior. By educating a workforce about those behaviors that are wasteful and ineffective, the employer can reap significant savings for itself and its employees. And by analyzing the response rate to different messages and campaigns, HR can then determine what incentives would be useful to obtain even greater compliance.

3. Real-time data access. It’s not enough to have healthcare plan data; it needs to be timely or its utility is diminished. The best way for employers to be proactive is for them to be able to see what is happening with claims and cash flow on a monthly, weekly or even a daily basis. At a minimum, the employer should review its data at least quarterly. And the larger the employer, the greater the number of employees and claims, the more frequently the data needs to be examined.

Three years ago, it would have taken three weeks to scrub a mid-size employer’s claims data. Now it can take just two hours.

4. Safeguards. Data is power. That’s why an employer wants to ensure that only authorized personnel have access to healthcare plan data and analytics. There are legal and privacy considerations as well. That’s why it’s crucial to have robust security that maintains an audit trail of who touches what data and when. In case of an error or a breach, the event can be traced back to the people involved at the moment where it occurred.

Self-funding will continue to be transformed by technology. Cloud-based software is making it possible for ever smaller employers to implement and administer self-funded plans. Embracing and utilizing these tools can lead to lower premiums, greater access to health care and reduced costs for employer and employee alike.

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House Passes Bill to Protect Access to Affordable Health Care Options

Press Release from Education and the Workforce Committee Chairwomen Virginia Foxx on April 5, 2017.

The House today passed the Self-Insurance Protection Act (H.R. 1304), legislation that would protect access to affordable health care options for workers and families. Introduced by Rep. Phil Roe (R-TN), the legislation would reaffirm long-standing policies to ensure workers can continue to receive flexible, affordable health care coverage through self-insured plans. The bill passed by a bipartisan vote of 400 to 16.

“By protecting access to self-insurance, we can help ensure employers have the tools they need to control health care costs for working families,” Rep. Roe said. “Millions of Americans rely on flexible self-insured plans and the benefits they provide. Federal bureaucrats should never have the opportunity to limit or threaten this popular health care option. This legislation prevents bureaucratic overreach and represents an important step toward promoting choice in health care.”

“This legislation provides certainty for working families who depend on self-insured health care plans,” Chairwoman Virginia Foxx (R-NC) said. “Workers and employers are already facing limited choices in health care, and the least we can do is preserve the choices they still have. I want to thank Representative Roe for championing this commonsense bill. While there’s more we can and should do to ensure access to high-quality, affordable health care coverage, this bill is a positive step for workers and their families.”

BACKGROUND: To ensure workers and employers continue to have access to affordable, flexible health plans through self-insurance, Rep. Phil Roe (R-TN) introduced the Self-Insurance Protection Act (H.R. 1304). The legislation would amend the Employee Retirement Income Security Act, the Public Health Service Act, and the Internal Revenue Code to clarify that federal regulators cannot redefine stop-loss insurance as traditional health insurance. H.R. 1304 would preserve self-insurance and:

  • Reaffirm long-standing policies. Stop-loss insurance is not health insurance, and it has never been considered health insurance under federal law. H.R. 1304 would reaffirm this long-standing policy.
  • Protect access to affordable health care coverage. By preserving self-insurance, workers and employers will continue to benefit from a health care plan model that has proven to lower costs and provide greater flexibility.
  • Prevent bureaucratic overreach. Clarifying that regulators cannot redefine stop-loss insurance would prevent future administrations from limiting a popular health care option for workers and employers.

For a copy of the bill, click here.

For a fact sheet on the bill, click here.

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State of Self-Funding State Benefit Plans

The article below is from International Foundation of Employee Benefit Plans, written by Teri Dougherty

Governor Scott Walker recently proposed self-funding Wisconsin’s $1.5 billion health insurance program for 250,000 state and local government workers and their dependents. For now, it is a proposal that is being heavily debated in the Wisconsin State Legislatures Joint Finance Committee. If self-insurance contracts are approved by May 1, 2017, a new self-funding arrangement could go into effect January 1, 2018.

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Image Source: www.ifebp.org

To self-fund or fully insure is mostly a question of who will take on the financial risk of paying claims for covered benefits. Here’s a closer look at the many considerations involved, using Wisconsin as an example.

Self-funding isn’t an all-or-nothing option. According to the National Conference of State Legislatures (NCSL), 46 of the 50 states self-fund at least one health benefit plan. Because Wisconsin currently self-funds three benefit plans, Wisconsin is considered a self-funding state by NCSL. Currently less than 30 states completely self-fund their health insurance programs.

Why self-fund some benefits and not others?

The state of Wisconsin is currently self-funding, or assuming the risk for their pharmacy, vision and wellness benefits. At the same time, the state pays health insurance premiums to 17 health maintenance organizations (HMOs) for fully insured medical coverage. A third option is to partially self-fund, in which the state/employer complements its self-funded program by purchasing stop-loss insurance.  Stop-loss insurance provides financial protection only if self-funded claims exceed a specified dollar amount within a specified period.

John C. Garner, in his book Self-Funding Health Benefit Plans, describes how state-sponsored self-funded plans may be structured:

  • Creation. Before a public employee plan may be self-funded, either enabling legislation or an opinion of the states attorney general is usually required.
  • Plan choice. Most state plans are multiple option plans, whereby employees are offered more than one health plan.
  • Participation. Most state plans permit other government entities within the state to become participating members, such as:
    • Independent state agencies
    • Counties
    • Cities, towns and municipalities
    • Principalities
    • Public universities
    • Water districts
  • The plans are usually funded as a general asset plan. Since public employers are tax-exempt, no trust is needed. Stop-loss agreements are typical with these plans.
  • Governance. Self-funded plans are usually managed as soundly as the political environment will permit. A board or committee that includes employee representatives typically governs the plan. With substantial employee representation, the need for a claims buffer may be greater for a public plan than for a private plan.
  • Administration of state plans (e.g., claims, consulting, risk management, utilization review, disease management and prescription drug cards) is generally provided by outside vendors—just like most other self-funded single employer plans.
  • Regulation. Public employee plans are not subject to ERISA, hence they do not have to meet federal reporting and disclosure requirements. Since they do not have ERISA preemption, the plans must meet any applicable state rules and regulations.

The Wisconsin debate involves multiple considerations, including how the elimination of multiple fully insured health plans options may affect the market and worker choice. The Legislature’s Joint Finance Committee is expected to consider the self-funding issue in April or May, 2017.  Will there be a shift in Wisconsin to self-insurance for the state workers’ health plan? How might that shift impact the state’s next budget, health care market and economy? The International Foundation, residing in the great state of Wisconsin, will stay tuned.

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