While we are seeing record growth across the country, self-funding is a topic that few are familiar with, even though many participate in self-funded plans. It is an ever-growing trend in the industry, yet it is still largely a mystery to many. The problem is that many plans that do self-fund aren’t very smart about it. As most of you know, self-funding is a type of health benefits coverage whereby the employee pays a contribution to the employer – generally out of his or her paycheck – and the employer keeps the contribution amount as part of the employer’s assets and, in turn, provides the employee and any eligible dependents, with certain health benefits coverage . The employer pays for eligible health claims out of its own pool of assets. As readers of this article know, we here at The Phia Group have been self-funded for years.
In self-funding, the employer retains all risk and can purchase stop-loss insurance to mitigate the ever present risk. As I love to preach as often as I can, self-funding lets the employer customize the benefits it provides and offer a broad framework of benefits to better its business and the quality of its employees’ lives.
The Employer Shared Responsibility provision of the Patient Protection and Affordable Care Act (“ACA”) went into effect for certain applicable large employers on January 1, 2015. The Employer Shared Responsibility provision is often referred to as Pay or Play, the Employer Mandate, or 4980H subsections (a) and (b). The applicability date of the Employer Shared Responsibility provision (“Employer Mandate”) depends on an employer’s size, as well as, whether or not the plan is a non-calendar year plan and meets the non-calendar year plan transition relief (provided by the final regulations issue on February 12, 2014). As of January 1, 2015, the Employer Mandate is applicable to employers with one hundred or more full-time employees including full-time equivalents. Transition relief for certain smaller employers expires for 2016. Therefore, as of January 1, 2016, the Employer Mandate is applicable to employers with 50 or more-full time employees including full-time equivalents. It’s important to note that the size of the employer is based on actual employees, and not based on the number of employees enrolled in the employer’s health plan. The Employer Mandate is in effect for applicable large employers regardless of whether or not the employer’s plan is grandfathered or non-grandfathered.
What is the perfect size for a self-funded plan? This is one of my favorite questions and I love to ask it at any conference at which I happen to have the pleasure of attending and speaking.
The answers I receive are pretty funny and actually typical, ranging anywhere from 200 lives to 1,000,000. Yes, somebody actually stated that the perfect self-funded plan size is 1,000,000 lives. I almost passed out when he said this as I realized right away that this gentleman is a broker and has clients who place their trust in him. I started praying for those clients right after that session! The right answer is surprising to most as it potentially can be just one person. A self-employed person who happens to have a lot of money and is in great health could easily be self-insured. It really isn’t the size that matters at all; it is the behavior of the employee population. That one person can walk into any medical facility and negotiate his or her own bills. We all know that cash is king!
Think this through…which is the better plan to self-fund? (This is just a hypothetical, so please do not get upset at this example – I have plenty of friends and family who drive trucks for a living!) The first plan is the 5,000 employee plan of truck drivers where the average employee is 75-lbs overweight. The employee population has a major drug addiction issue, loves to drink, smoke, and do some very dangerous activities outside the workplace. Or would you believe that the plan with 30 yoga instructors who don’t drink, don’t smoke, don’t do drugs, are in better shape than anyone could possibly be in and just overall make everyone else in the country look out of shape? Who do you think is the better risk for self-funding their benefit plan? If you are the stop-loss carrier, who would you rather insure? Exactly. The size of the employer doesn’t always matter. The plan demographics, the plan language, the claims data, and potentially the wellness programs are what matter the most.
In a country with a seemingly infinite amount of regulation and concerns regarding benefit plan compliance following the passage of the Affordable Care Act in 2010, one would expect much attention from courts in the employee sponsored health benefits arena. Most might be surprised when they realize the amount of attention that subrogation has received in The Supreme Court of the United States, the highest court in the land, over the last 25 years. Subrogation, a concept few truly understand and even fewer recognize, has been reviewed by The Supreme Court several times since 1990. Even legal practitioners unfamiliar with the world of insurance law might struggle to provide a satisfactory explanation of it. Many an industry practitioner can tell tales of their encounters with even subrogation professionals with questionable understanding of the concept.
In the 226 years of The Supreme Court’s existence, It has reviewed approximately 1,742 cases, or eight cases per year. Most courts in America review more than that per day. With such limited volume, it is surprising that the issue of subrogation has been directly dealt with four times since 1993 (i.e. 4 of the last 469 cases). While two applications for review have been denied, a fifth case, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case # 14-723, is now slated to be heard by The Supreme Court in 2015.
If you are a long time reader of mine, I would first like to say thank you for being the only person other than my mother to read what I write. It is extremely kind of you to do so! As a loyal reader, you would also know that it doesn’t take a lot to get me going and in the self insured industry it seems like something new happens on a weekly basis that gets my water boiling. For the past few years, amongst the threat of the exchanges and the state regulation of stop loss, nothing has bothered me as much as the wraps! Wrap networks that is. If PPO networks weren’t bad enough, in case you have a claim that doesn’t belong to a network, you can always pay the claim through the wrap network. So if one network wasn’t enough, with a wrap you can even work with more.
What we have is an industry phenomenon. TPAs and self funded plans complain about their networks all the time. How the discounts are bad, how you don’t have the ability to audit the claims, how the networks really work on behalf of the hospitals and not the plans. Everyone seemed to complain about them yet need them to attract clients that aren’t willing to go the reference based pricing route. You need a network to survive as I am told by every executive that has been in the industry longer than I have been alive.
Yet at the same time, these professionals long for the day when they see a large claim and have the ability to fight the facility about the excess charges, save their clients money, look like a hero to the broker, have the stop loss carrier thank them, and make the TPA some extra revenue from the savings they found. The problem is they have this option right now and it’s called the out of network or wrap network claim. Every day I see TPAs and self funded employee benefit plan throw good money down the proverbial toilet.
It’s no secret that America devotes more of its gross domestic product to healthcare expenses than any other country. Runners up, including Canada, the Netherlands, France, Germany, and Switzerland, don’t even come close. There are many reasons we spend so much on healthcare; the blame can be properly distributed among many parties and over many decades, and it is hardly worth even getting into such a discussion in such a brief article. To such a complicated problem, it is of course no surprise that there is no silver bullet solution. However, from the perspective of health plans, there are several methods which have emerged over the years as successful ways to minimize costs.