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Medical Funding Options: What arrangement is best for your company?
There are more medical options available today than ever before. Years ago, Self-Funding was only available to large organizations while today organizations with as few as 10 employees have the option to Self-Fund. Today, employers are looking for more creative ways to help mitigate cost as significant renewal increases are on the rise. This blog is going to address the different funding mechanisms available in today’s market. I hope that it will help you determine which one is best for you. Options below are in order listing the least control, least risky, and least stable options first.
Fully Insured Option
In a Fully Insured arrangement, smaller companies with less than 300 employees do not have plan design flexibility. In other words, the plan designs are pre-determined by the insurance carriers. Assuming an employer is most comfortable in a Fully Insured arrangement and they want to remain as is, the only way to help mitigate cost would be to change carriers or plan design (increase deductibles, copays, etc.). Plan design changes will increase out of pocket costs to their employees. Issue here is that as medical plans are increasing in premium and out of pocket costs, employees are becoming reluctant to seek medical care. The option to switch insurance carriers could be disruptive to their employees, as networks will change. So you may ask, why stay Fully Insured? Fully Insured is the safest vehicle, although most likely the most expensive. The employer is responsible for paying their set monthly premiums and the carrier will pay the claims. The insurance company profits when claims paid are less than premiums paid and when claims are more, insurance companies will increase premiums at renewal. In a Fully Insured arrangement, there may or may not be any transparency in claims experience and utilization dependent upon company size. In Fully Insured arrangements, employers have least control.
Self Insured Options
Level Funded
Level Funded plans are Self-Funded plans that look and feel the most like Fully Insured plans. Depending on the carrier, plans may be customizable depending on state mandates. In Level Funded plans, the Stop Loss carrier, Administrator, Network, and Prescription must be bundled with the carrier. Premiums are also pre-set so there are no surprises on what the company pays out monthly. Although there is a possibility that monthly rates may be more expensive than Fully Insured plans, there is a potential to share in surplus if claims run well. The employer has more control, as they can now understand how their claims and utilization are running and will have more skin in the game. Level Funding is also safe in the sense that an employer can terminate without any penalty or exit costs. It is important to note that the smaller the company, the riskier it is to Self-Fund as one catastrophic claim can lead to significant renewal increases in a Level Funded arrangement.
Consortiums
A consortium program is a Self-Funded plan with the protection of Stop Loss Purchasing power. Employers will have the protection to be rated along with hundreds of other companies under the same Stop Loss carrier and therefore receive Stop Loss discounted rates. Plan designs are completely customizable and there is potential to receive 100% of surplus if claims run well. The only non-negotiable carrier in this program is the Stop Loss carrier. The Employer can choose any network of their choice along with any Pharmacy Benefit Manager of their choice. The additional programs including Wellness and Clinical to consider are limitless. The company’s claims and utilization will help determine what they need to create a long-term sustainable strategy. The company will have the option to pay claims as they go or pay to the Maximum Cost if they feel most comfortable having set monthly premiums. There will be exit costs if the company decides to terminate.
Captives
A Captive program is a Self-Funded plan with the protection of other similar or non-similar companies that buy-in to the Captive. Upfront collateral is due before entering the program along with providing additional collateral every year based on the company’s premium. The company essentially becomes an owner to the Captive and can help make decisions on requirements, etc. Plan designs are completely customizable. Employer has freedom of choice for Network and Pharmacy Benefit Manager. Stop Loss carrier is pre-determined by the Captive. There is a possibility that fixed costs may be more expensive. However, potential to receive 100% of surplus along with dividends is attractive. Renewals are based on shared risk among other members in the Captive. There will be exit costs if company decides to terminate.
Traditional Self-Funded
In a traditional Self-Funded arrangement, everything is completely customizable including plan designs, Network, Stop Loss Carrier, and Pharmacy Benefit Manager. The company stands alone and is rated based on their own experience. Fixed costs in this arrangement are typically the least expensive. The company has option to pay claims as they go or pay to the Maximum Cost at pre-set monthly premiums and potential to receive 100% of surplus. The programs to add on year after year are limitless. As with any other Self-Funded program, it is meant to be a long-term strategy. The employer has most control in this arrangement. There will be exit costs if company decides to terminate. Cash flow and risk tolerance need to be evaluated in any self-funded arrangement.
Overall, there are many options to consider. Exude is here to help you navigate, explore and evaluate what options will fit your needs. Check out our page on employee benefits consulting to learn more.
