Self Insured Plans

What You Need To Know About Self Insured Plans…

Under a Self Insured (or Self Funded) plan the employer establishes their own benefit design, which is free from all state mandates and restricted by only ERISA guidelines. The benefits are formally written in a Plan Document and Summary Plan Description.

Under this type of arrangement, companies share a portion of predetermined and expected claims risk with a particular insurance carrier, often referred to as a reinsurance carrier. The reinsurance carrier is responsible for setting premiums for the various types of insurance it will provide for your self-funded arrangement (For an explanation of contracts see Types of Contracts link.)
Since all medical programs contain a portion of predictable risk, when an employee pays their portion of the deductible they are in essence self insuring this portion of their risk. Self funded programs allow the employer to assume (self-insure) a portion of the risk that is normally covered by the insurance company. This portion of the risk is kept predictable by purchasing reinsurance.

In order for an employer to be adequately protected, there are three main types of reinsurance that should be reviewed;

•  Aggregate Coverage,

•  Monthly Cash Flow Protection, and

•  Specific Coverage

Aggregate Coverage- Protects the employer against the aggregation of claims that fall below the "Specific Stop Loss" level during the policy liability period. The Aggregate Liability Limit is expressed as a monthly maximum claim factor per covered employee and dependent (or sometimes on a composite basis). The maximum annual Aggregate Claim Liability is calculated by multiplying the aforementioned factors by the number of employees and dependents on a monthly basis. At the end of the contract year, if claims have exceeded the annual Aggregate Claim Liability limit (eligible expenses incurred and paid during the policy liability period that will be reimbursed by the reinsurance carrier)

Monthly Cash Flow Protection- Enhances the Aggregate Reinsurance Protection by limiting the employer's aggregate liability into twelve (12) rolling cumulative installments. For example, an employer utilizing a $20,000 "Specific Stop Loss" level that had four $15,000 claims in the third month of their program would not be entitled to "Specific Stop Loss" level reimbursement. Aggregate Stop Loss claims are payable only at year-end. However, if Monthly Cash Flow Protection is utilized, the employer's liability is capped (rolling cumulative basis) at an amount equal to the attachment factor times the number covered employees and dependents each month on a year to date basis.

Specific Coverage- Protects the employer by limiting their specific claims costs to a specified level (for example $20,000) for covered people during the policy liability period. After that amount has been satisfied, the insurance company under the Specific Excess Loss coverage will reimburse eligible expenses incurred during the policy liability period.

Specific and Aggregate stop-loss coverage is not an insurance policy. The carrier or reinsurer has no obligation to physically pay claims for plan members. However, the carrier does provide the necessary specific and aggregate stop-losses to protect the employer in the event of high claims. All claims are in fact reviewed and paid, if eligible under the parameters of the plan, by a (TPA) or third party administrator. This process begins with the selection of the qualified (TPA) third party administrator.

For more information, please contact us online or call us at 1-800-223-9941.