When I’ve asked an employer how they are paying for, or funding their healthcare benefits, I usually get 1 of 2 answers: “We’re fully insured” or “we’re self-funded.” Fully insured needs no explanation, however the there are various types of self-insured plans.
By definition, a true self-insured plan refers to the pure self-insurance of healthcare costs without any kind of reinsurance and stop loss protection for the Plan Sponsor. It’s highly unusual for mid-to-large employers not to have some kind of protection, especially with the ACA requirement of Unlimited Benefit Maximums. Partial Self-funding utilizes some form(s) of stop loss protection, hence partial self-funding. For purposes of this article and simplicity, I will refer to Self-funding and Partial Self-funding synonymously.
Self-funding has gained immense popularity recently among all employers as a way to control healthcare costs. Smaller employers who don’t want to comply with certain aspects of PPACA are also turning to self-funding as a means to gain control of their health plan and the related costs. The ACA permits self-funded plans to be exempt from various provisions such as the premium tax, pooling requirements, medical loss ratios, and certain plan provisions and requirements. I recently read an article which claimed that 64% of businesses are now self-funded.
There basically 2 types of self-funded opportunities: what we in the business refer to as “bundled” and “un-bundled” plans. Both can be effective, have their advantages and disadvantages, and can be attractive to businesses for a variety of reasons.
A bundled plan is typically an insurance company’s version of self-funding, whereas an un-bundled plan utilizes various free standing components used together for the entire assemblage and operation of the self-funded plan.
Bundled plans give the appearance and impression of an insurance company – first and foremost it’s the name recognition – but all components of the plan are proprietary and all fall under the umbrella and control of the insurance company. These may include: administration, stop loss insurance, PPO network, Pharmacy Benefit Management, plan design templates, wellness programs, reporting and data analytics, Utilization Review/Utilization Management, risk management, etc. – all bundled plans put control and ownership directly under the insurance company’s control. Examples would include self-funded programs by CIGNA, Anthem, Blue Cross, United Health Care, Aetna, etc.
Advantages are: name recognition employees and providers, fiduciary responsibility, comprehensive networks with PPO discounts, cookie cutter plan design, etc.
Disadvantages are: lack of customization and flexibility, nimbleness, a cookie cutter plan design approach, no interchangeable parts e.g. stop loss and PBM, lack of willingness to download data for data analytics, risk management integration with outside vendors, data sharing, no carve out of providers or direct contracts, may require funding of reserves.
Bundled Program:
- In-House Administration
- Proprietary Network
- Proprietary Pharmacy Card
- Contracted Agreements
- Insurer Keep Rebates
- Excess Loss Coverage
- Proprietary Reinsurer
- In-House Wellness
- Plan Design Restrictions
- In-House Specialty Programs
- Control Rests with Insurer
- Cash Flow – Varies
In the next article, I will cover Un-Bundled Plans.