Advantages of Self-Funding

Sharon McReynolds

As mentioned in a prior article, self-funding an employee benefit plan as a long-term strategy to save money works because it does afford an awesome opportunity for an employer to achieve savings plus cost control. Over history, the smaller employers, those traditionally under 250 or even 100 employees, have been hesitant to self-fund their health plan as in the past it was commonly believed that self-funding was only appropriate for “large groups.” Our previously owned third party administrator (TPA), Group Administrators, Inc., survived and flourished on companies with less than 250 employees and several with down to 25 employees. We were able to establish the right plan design, the correct specific deductible amount as well as placement of an aggregate coverage, often paired with a monthly accommodation feature, that allowed our clients to be confident in their determination that self-funding was in fact a formula for success.

The purpose of this article is to allow you to gain some insight into the key determining factors to consider for your company when deciding if self-funding is a viable option for you. The right health plan can and should be an integral part of the proper growth and success of your company, the wrong one can have very negative impacts. We believe you can offer the benefits much larger companies offer, taken down to a proper scale, to benefit you, the small employer.

A self-funded plan affords all groups, regardless of size, the opportunity for savings. You have the opportunity to pay your own claims, while a TPA administers the claims, processing them, issuing ID cards, handling the tasks that the insurance companies typically do. The difference: they hire a “stop-loss” carrier on your behalf to take on a large piece of the risk, leaving you with the risk under the stop-loss amount. Your company pays for the everyday claims, the stop-loss carrier is there to protect you from the run-away claims. If designed properly, you know exactly what your risk is from one year to the next, and oftentimes, from one month to the next. Again, if designed properly, your risk should line up with what you were paying in a fully insured environment.

Obviously there is now some incentive for the employer and employees to be involved in the delivery of health care: cost savings. Wellness programs, HSA’s, consumer-driven health plans with high deductibles paired with programs allowing employees to participate in their own comparison shopping on their respective providers or hospital charges before they are incurred — all are great ideas to incorporate to save money on the overall health plans that we design.

Self-funding also aids the employer in knowing what and where you are paying for delivery of care. Wouldn’t you like to be able to dig into the amount your company is paying toward emergency room visits, or specific drug costs? How about the overall cost for in- and out-of-network claims, or wellness visits? Self-funding will afford you the opportunity to see exactly where your health plan dollars are spent month-to-month, giving you the chance to make informed decisions moving forward at renewal regarding benefit changes or employee contributions. You can tailor the benefits to meet your specific group’s needs. Employers with self-funded health plans see exactly how the plan performs, thus removing the element of surprise at renewal as it relates to substantial increases or decreases in premium.

With over 30 years of experience in the self-funding arena, we welcome the opportunity to discuss the concept in further detail. Please visit our contact us page to schedule a more in-depth discussion.

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Are You Prepared for Looming Overtime Rules?

As business owners and HR professionals, we need to be paying close attention to developments on the proposed rulings to overhaul the current exemptions under the Fair Labor Standards Act – FLSA.

The U.S. Department of Labor has proposed a rule to increase the standard salary level for executive, administrative and professional exemptions and the minimum total annual compensation level of the “highly compensated employee” exemption under FLSA.

Under the current proposal, the salary limit for workers eligible for overtime pay would increase from $23,660 to $50,400. This change in amount would obviously impact millions of U.S. workers.

What do you need to do to prepare? While the regulations may not be final until late June or July 2016, employers need to pay attention to how their employees are classified now. Should they be reclassified as non-exempt and paid overtime, or should they receive a raise to meet the new threshold requirement?

In the proposed changes, the DOL clearly ties the changes to the salary. It did however, leave the door open to changes at some point that are currently tied to the duties test. Currently, exemptions are based on the duties an employee performs from day-to-day and determination as to whether or not they fall into the executive, professional or administrative exemptions.

The DOL is asking for comments about a percentage threshold test when evaluating whether the employee is performing duties that are actually exempt or non-exempt.

While “full-time” for health insurance regulations is 30 hours per week, for purposes of payroll employers need to ensure that any work exceeding 40 hours per week, or 8 hours per day in some jurisdictions, is paid at the appropriate rate.

There is no final ruling yet, but the time to prepare is now.

Legislative Brief: What is an ERISA Plan?

What is an ERISA Plan in the group health plan environment? ERISA has been amended many times over the years, expanding the protections available to welfare benefit plan participants and beneficiaries. ERISA violations can have serious and costly consequences for employers that sponsor welfare benefit plans, either through DOL enforcement actions and penalty assessments or through participant lawsuits.
ERISA applies to virtually all private-sector employers that maintain welfare benefit plans for their employees, regardless of the size of the employer. This includes corporations, partnerships, limited liability companies, sole proprietorships and nonprofit organizations. They exempt two types, those maintained by Governmental Employers and Church Plans.
ERISA generally applies to the following common employee benefits, regardless of whether they are insured or self funded:

  • Medical
  • Dental
  • Vision
  • RX
  • HRA’s
  • FSA’s
  • Group Life and AD&D Benefits
  • EAP’s
  • Short and Long Term Disability Benefits
  • Disease-specific Coverage (for example, cancer policies)

ALL Group health plans subject to ERISA are required to provide participants with a summary plan description (SPD). An SPD must be written in a manner calculated to be understood by the average plan participant and must be sufficiently comprehensive to inform the participant of his or her rights and obligations under the plan.

For additional information, please feel free to contact us at 214/739-5215.

Self-Funding: Points to Consider

Gaining popularity similar to it’s peak in the early 1980’s, self-funding is making a comeback. Many brokers / advisers are not well versed in this concept, and therefore are less likely to present the approach to clients. One point they will also likely not share with clients: commissions are paid on the stop loss premiums, not the entire premium amount.

There are reasons to consider self-funding that typically outweigh the reasons not to self-fund. Most importantly, you should be working with an experienced adviser. One who works with self-funded clients day-in and day-out. An adviser who has relationships with a number of Stop Loss Carriers, Third Party Administrators (TPAs) and Pharmacy Benefit Managers, just to name a few.

The first point to consider – self-funding is not a “one year” solution. I do not recommend self-funding to any of our clients if they are not willing to commit to an overall 3-5 year plan. Typically the concept is a win for the client on average four out of five years, but you must be prepared for the bad along with the good.

Additionally, the size of the group should not deter your group from exploring self-funding as an option for your plan. I hear many of my peers say a group has to be at least 200 or 100 employees to consider self-funding, and that is just not true. If a client is financially stable and the adviser understands and communicates all risks involved in the contract, self-funding can be offered successfully as an alternative for clients with as few as 20-25 employees. Some of our clients in the range of 25 employees have been self-funded for over ten years, and are very happy with the stability of the rates over that time period.

Many smaller to mid-size clients should consider a closer look at self-funding due to some distinct advantages under the Patient Protection and Affordable Care Act (PPACA).

This is the first in a series of posts that will focus on the concept of self-funding. With 30+ years experience in all things self-funded, we have a lot to share. We welcome questions and hope those who read will learn something. Continue to follow us for more information coming soon.

Price Transparency in Healthcare

As a business owner, one of the most appreciated benefit offerings to our own employees is a price transparency tool. As one of the first agencies in Dallas to deliver the valuable behavior modification tool, it is amazing to see the product now being offered across the entire nation in under a decade. With over 2,000,000 members now covered, from the Houston Rockets to the employees of Southwest Airlines and Michaels, your employees could also benefit from a true concierge program.

As we implement plans with increased deductibles and copays, we need to give employees the tools and skills to support their efforts to become good consumers of healthcare. All of us have tools to price a vehicle before we head to the car lot. Few of our employees have ever had a tool to price a surgery, the price of which could be comparable to purchasing a car. We do not stop to analyze how much the surgery, the surgeon, the surgery center or even an MRI or prescription drug will cost prior to the procedure being performed. Our transparency tool can compare many choices side by side, and will take it a step further and schedule the appointment, complete the follow up and review the bills after they have been processed if your employees have questions.

Think of the potential dollar savings to your plan, and just as important, the time saved by your employees and the increased satisfaction level as they truly have a patient advocate working for them, hired by you.

For more information, contact Sharon McReynolds: smcreynolds@medconbenefit.com or 214-739-5215.

What Should You Look for When Searching for an Employee Benefits Advisor?

When evaluating, expanding and maintaining your benefits, including self-funding, fully insured or voluntary benefits, look for these qualities in a broker:

1. Comfort and trust level: Do you feel comfortable working with your broker? Do you feel they have your best interests in mind? Do you trust their intentions – are they assisting you with meaningful benefits or merely “selling” benefits?

2. Resources: Does your broker have resources to evaluate how your plans are working? Can they compare them to other plans in the marketplace; do they have benchmarking tools? Are they providing any level of HR services or tools?

3. Experience: Has your broker implemented both self-funded and fully insured plans? Have they worked with large groups, small groups? Do they have experience in traditional and voluntary plans? Short- and long-term disability? Long-term care? Do they have a working relationship with various carriers? Enough to know who requires what and who provides exceptional service?

4. Strategy: Is your broker experienced enough to actually think out of the box and provide innovative solutions? Do they have a long-term strategy for your future over a three- to five-year plan, or do they just bring you a spreadsheet with a “pick a rate” strategy for the year?

5. Compliance and Regulation: Is your broker well-versed in all things ACA (Affordable Care Act) as well as the DOL, ERISA, HIPAA and Plan Document requirements, just to name a few?

6. Compensation Disclosure: Do you know each and every year exactly how much your advisor is compensated on each product?

All of these questions should be answered with confidence in your relationship with your benefits partner. You know up front exactly what to expect from your CPA and your lawyer. They are strategic business partners and have responsibilities in the success of your firm. We submit that your benefits is every bit as important, should not your partner be chosen just as carefully?

The Affordable Care Act – How the Individual Mandate Impacts Your Employees

As the Patient Protection and Affordable Care Act (PPACA) continues to be implemented, employers and their employees have questions about how the health care law affects them.

In an effort to keep our clients up to date about PPACA, we commit to answering the many questions that arise. Here is a basic sampling of the top questions:

Q: What is the individual mandate?

A: The individual mandate is the provision in the PPACA that says most US citizens and legal residents must have health insurance. For a listing of exemptions refer to www.Healthcare.gov. Some examples include: those who are incarcerated, members of a federally recognized tribe, those with religious exemptions, etc.

Your employees who do NOT comply with the individual mandate will be responsible for penalties when preparing individual tax returns. For 2014, the penalty equates to the greater of $95 or 1% of your annual income. If you earn under $10,150, there is no penalty. For 2015, the penalty equates to $325 or 2% of annual income. For 2016, the penalty equates to $695 or 2.5% of annual income.

As you can see, the Affordable Care Act has a direct impact on your employees regardless of whether or not you offer coverage. Dollars spent paying penalty fees could be used to contribute to group health insurance premiums, which in turn can lead to numerous benefits for your business – including employee retention, higher morale and peace of mind for our employees.

Q: What is the exchange or marketplace?

A: The public marketplace, or exchange, is the website where individuals can comparison shop for health plans and sign up for coverage. You have probably heard this referred to as: www.Healthcare.gov.

Federal tax subsidies to help pay for medical coverage may be available to eligible individuals if they enroll for coverage through the public marketplace.

The types of plans offered through the marketplace must be qualified health plans and must meet certain “metallic” levels of coverage – bronze, silver, gold or platinum. These metallic designations refer to the actuarial value of the plan, or how much, on average, the plan pays for the cost of covered benefits.

Q: What are essential health benefits?

A: Effective for plan years beginning on or after January 1st, 2014, all plans offered through the exchange are also required to cover certain, essential benefits. The PPACA requires plans to cover at least 10 general categories of items and services:

  • Ambulatory patient services (outpatient care)
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder benefits, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

Q: Who is eligible for a subsidy through the individual marketplace?

A: Some individuals are eligible for tax credits to assist with premium payments and cost-sharing. Individuals with incomes between 100% and 400% of the federal poverty level are eligible, a family of four with income between $23,850 and $95,400.

Q: As an employer, should I offer health insurance to my employees?

A: Should you decide not to provide health insurance to your employees, you may be subject to penalties of up to $3,000 per employee. If you do provide coverage, it must be affordable and meet minimum value requirements. To maintain affordability, premiums may not exceed 9.55% of an employee’s annual income.

Most employees will find coverage offered through an employer to be more affordable than coverage offered on the marketplace based on your contributions. You have to weigh the cost of providing the benefit against the penalties as well as the intangible impact of not offering any coverage to your employees.

For help in making this important decision, we can work with you through our many resources and tools to estimate potential penalties against the cost of providing health care coverage to your employees.

This content is provided without any warranty of any kind. MedCon has taken reasonable steps to ensure this information is accurate and timely. If you have specific questions that pertain to your unique business environment or industry, we recommend that you consult legal council.