Frequently Asked Questions
Q: What is a self-funded health plan?
A: A self-funded (or self-insured) health plan is one
in which the employer assumes some or all of the risk for providing health care
benefits to his employees. He takes control of the assets of
his plan, puts them in a trust, invests them to his advantage, and eliminates
the insurance company charges. He can completely redesign the plan if
he wants. When he decides to self-fund his health plan(s), the employer
usually checks to see how well the insurance company has administered his plan.
If he isn't satisfied, this is the time to change administrators.
- An employer doesn't pay full state premium taxes,
which usually range from 2 percent to 3 percent of the monthly insurance premium,
if he's self-funded.
- In a self-funded plan, you don't pay insurance
company risk and retention charges.
- The employer retains control over the health
plan reserves, enabling maximization of interest income.
- Insurance companies are subject to state regulation;
self-funded plans only to federal regulation, thereby giving the employer
almost total control of the plan design.
- An employer doesn't have to pre-pay coverage,
thereby improving his cash flow.
- An employer only pays benefits based on his
employees' histories, not someone else's employees.
Q: What is excess-risk coverage?
A: Excess-risk coverage is insurance sold to sponsors
of self-funded health plans to guard against unacceptable losses. There
are two types of excess-risk coverage:
- Specific coverage that insures against
a single catastrophic claim that exceeds a dollar limit chosen by the employer
and agreed to by the excess-risk carrier. For example, specific
coverage would come into play if one of the covered participants was in a
catastrophic accident and had claims that exceeded the agreed-upon dollar
limit. In this case, the specific coverage would reimburse for
that participant's covered expenses beyond that dollar limit.
- Aggregate coverage that insures against all
the claims exceeding a specific dollar limit chosen by the employer and agreed
to by the excess-risk carrier. If all the claims payable exceed
the agreed-upon dollar limit, aggregate coverage would reimburse the excess.
Excess-risk coverage protects the plan against unforeseen catastrophic
claims that would cost more than is budgeted in the plan and place undue financial
burdens on the employer.
Q: What are the advantages in using a TPA?
A: The principal business of a TPA is administration of
self-funded benefits plans. Insurance companies mainly insure - that's
their business. TPAs don't insure - they deal with self-funding. They're
the experts.
The bywords of a TPA are entrepreneurs responding to each client's needs, no
matter how small the client.
- Plan design consulting
- Cafeteria plan design
- Contracting for excess-risk coverage
- Claims administration
- Contracting with utilization review/managed care companies
- Preparing of government forms - 5500 series
- HIPAA compliance
- PPO network maintenance
- Enrollment services
- Writing and printing of SPD booklets and plan documents
- COBRA compliance
- Client reports
- Recordkeeping