I previously wrote an article Self Funding 101: Bundled vs. Un-Bundled, Part 1 and explained why so many employers are choosing partial self funding as an alternative to a fully insured plan. I also gave an explanation of a bundled self-funded plan and the advantages and disadvantages of it.
I would typically characterize a bundled plan as an insurance company’s version of a self funded plan, i.e. all of the components of the program are owned and/or operated by the insurance company. An un-bundled plan is one where each of the components are provided and operated by independent programs that are connected so that the plan can operate. They are normally unrelated to each other and have no common ownership.
A Third Party Administrator (TPA) would be contracted with to provide claims adjudication and administration. A PPO network would be evaluated, selected, and implemented that provides the greatest coverage of providers for any given employer – locally, regionally, and nationally. Think of it as a “rented” network rather than one that’s proprietary to an insurance company.
A Pharmacy Benefit Manager (PBM) would be utilized to provide retail and mail order prescription drug drugs for employees and other family members. The Summary Plan Description is written and customized for the employer and their employees to not only be compliant with ERISA and the ACA, but to reflect the employer’s intent rather than an insurance company’s boiler plate templates. It doesn’t have to be a round peg trying to fit in a square hole.
Wellness and disease management companies can be evaluated, pursued, and implemented to accommodate the employee needs and conditions rather than one-size-fits-all. Various reinsurance companies can be shopped through a variety of sources and stop loss coverage can be evaluated and compared to find the most competitive contract’s available. Certain specialty programs such as oncology management or diabetes management can be evaluated as well.
It’s important that for each of these programs, a number of different companies be examined. One of the essential requirements is to evaluate only these programs that are considered Best In Class. For example, there are many, many TPAs, PBM’s, Reinsurers, etc., but an employer needs to be very careful that they’re only evaluating the very best of these. Most of the time a broker is probably the one that’s doing the marketing for the employer, but the employer needs to be absolutely certain that the broker is evaluating only the best. How do you know if your broker is doing just that? You don’t.
When evaluating TPA one of many aspects that is critically necessary to understand is fiduciary liability and responsibility. Under a bundled plan, generally speaking the insurance company is the plan fiduciary, or co-fiduciary. In an un-bundled plan the plan sponsor or the employer is the plan fiduciary. Whether it’s making eligibility determinations, adverse claim determinations, or any other decisions related to the plan, the plan fiduciary is ultimately responsible. So when you’re evaluating TPAs, most brokers will overlook this. Most employers would like to hand off that responsibility to another party, and there are some TPAs that will agree to accept that responsibility, and there are others that won’t have anything to do with it.
The beauty of an un-bundled plan is that if one of the components is no longer desirable because of cost, service, or some other issue, it’s easy to simply terminate that contract and implement an alternative program without disrupting the plan. Depending upon what is replaced e.g. stop loss, it doesn’t require another enrollment or changes to ID cards for employees. With a bundled program you would obviously have to change everything just like you do with fully insured plans. With an un-bundled plan, all the parts and components are independent and controlled by the employer.
Advantages are: interchangeable programs and components, generally lower costs, flexibility and customization with TPAs, PBMs, Networks, Stop Loss, data analytics, direct contracting with providers for better pricing,
Disadvantages are: name recognition, fiduciary responsibility (potentially)
Un-bundled Program:
- Independent Third Party Administration
- Independent PPO networks with national wraps
- Independent Pharmacy Benefit Managers who pass on 100% of pharmacy rebates and transparent agreements
- Excess loss coverage utilizing multiple reinsurers
- Custom wellness programs
- Custom plan design Custom specialty programs
- Total control of cash flow
- Total control of the plan
- No requirement to pre-fund reserves