Did you know that it's your duty to understand the components of a self-funded plan?
As the financial steward of your company’s health plan, you must understand the nuances of self-funded or self-insured health plans and how they operate and affect your package of employee benefits. Self-funded plans stand out for their flexibility and customization options, however, navigating the complexities of these plans requires a deep understanding of their educational components. Let's dive into the important elements necessary to guide your understanding of self-funded plans.
You are at the core of a self-funded plan as the employer. The employer is commonly referred to as the plan sponsor. The hierarchy of a self-funded plan has everything to do with you, the employer. It is very important to note that a self-funded plan is predominantly a single employer’s plan. This is the most empowering thing about a self-funded plan – you have authority over the rules of your plan. As the employer, you must still consider regulatory guidelines and compliance rules, but unlike buying a pre-built product off the shelf from an insurance carrier, as the plan sponsor you gain total flexibility to do what you want within the plan framework. Unlike traditional insurance plans where options are limited, self-funded plans offer the autonomy to design a plan tailored to your team’s specific needs and preferences. This hierarchy empowers employers to operate more efficiently while enjoying flexibility in the plan design.
Establishing a self-funded plan begins when you step into the role as the plan sponsor and begin crafting the guidelines inside the Plan Document and its Summary Plan Description (SPD). This document outlines the plan's details, including its name, coverage parameters, and rules for participants. Employers often work closely with their benefits advisor and their chosen third-party administrator (TPA) to develop the SPD, ensuring alignment with regulatory requirements and company objectives.
The SPD gives information about what that plan is and what it can do. It'll have a plan name, and just to reinforce that you as the employer are the ultimate authority, a typical self-funded plan name will be, “Employer Name Group Health Benefits Plan”. For example, ours is named “Generous Benefits Group Health Benefits plan”. After naming the plan, the SPD will start to describe who it's for and the rules that the plan must abide by. This plan document will also break down the different components of the plan and name the dominant service providers and responsible parties.
The Plan Administrator is normally an outside entity (third party) you hire to execute and abide by the terms outlined in the plan document. The plan administrator, often called the Third Party Administrator or TPA, plays a pivotal role in the success of the self-funded plan. From processing claims to managing network access and coordinating with vendors, the administrator ensures smooth plan operation while adhering to the guidelines outlined in the plan document.
When a TPA receives any claim, they refer to your company's plan document to verify how all claims should be paid. How much is covered, the timeline, any potential limitations, and the eligibility for coverage become the responsibility of the plan administrator. Because the plan administrator is integral to the plan execution, they will often be one of the main parties that helps you craft your company’s plan documents. Their input is crucial to ensure the plan’s rules don’t exceed their capability. Frequently, the third-party administrator works from a template plan summary and setup document that they use when helping you craft the perfect plan document designed to achieve your company’s stated goals. However, this is not always the case. When choosing a third-party administrator, one of the first questions should be about their capabilities and ability to assist with crafting and reviewing the plan documents.
Most self-funded plans operate within a network framework, which defines the providers covered under the plan. Most plans fall into the traditional PPO, HMO, or EPO network categories. These networks establish both the providers that are part of their network and they determine how much is paid to those providers based on their reimbursement rate which was agreed upon as part of their network contract.
In addition to the typical types of networks, there are also some options for cost savings you may want to utilize. These various options are all designed to help lower the costs paid out by the plan and the plan members on medical claims. These network strategies can come in the form of smaller or “narrow-network” options, direct contracts between your company and the medical provider, or the utilization of a reference-based claims payment model that simply sets a maximum dollar amount the plan will pay in the absence of any network contract.
The TPA again becomes a central figure when determining the network access or network payment strategy. TPAs don’t always have access to every network, so there are limitations on network availability that should be discussed with the TPA and your broker consultant when determining the best set of options for network access. The TPA also must review and pay all non-network claims if the plan summary includes coverage for non-network services. Often there will be other downstream vendors that the TPA utilizes to help them administer these non-network claims that aren’t always disclosed in the plan documents. This is a much-needed discussion that should take place between you, the TPA, and the broker consultant.
Collaborating with the pharmacy benefits manager (PBM) presents an immense opportunity to tailor your group’s drug coverage. The PBM will not only assist with the acquisition cost, and developing and maintaining its network of pharmacies, but they will also help you choose the appropriate drugs and cost-sharing levels of each medication within therapeutic classes while ensuring compliance with regulatory standards. Most PBMs also assist in procuring manufacturer rebates which are often available. Depending on their contractual setup with you, they may pass all or a portion of the rebates back to you via refund deposits into your bank account or as billing credits on your administrative fees. High-touch PBMs will also help members explore avenues for non-retail drugstore purchasing, potentially leading to significant cost savings. Additionally, these high-touch PBMs may offer guidance and assistance to your company’s plan members who are eligible to apply for various financial assistance programs, such as patient assistance programs (PAP plans), further enhancing the employer's ability to optimize drug benefits for their workforce.
Sometimes, there may be other pharmaceutical solution vendors that you as the plan sponsor may utilize in addition to or in conjunction with your main PBM vendor. Since you have a vested interest in reducing the costs of the drugs being purchased, these additional pharmacy vendors will often achieve additional savings for your plan by specializing in sourcing specialty and high-cost medications at a lower price point than through your main PBM.
To protect your company’s assets against high-dollar claims, sponsors of a self-funded health plan often purchase stop-loss insurance. This insurance coverage shields your group from financial liabilities associated with claims on a per-person level that exceeds the threshold you set, and you can have the option to set up a secondary plan that creates a worst-case scenario for your entire company. By mitigating risks, stop-loss insurance ensures financial stability while enabling employers to reap the benefits of self-funding.
Stop-loss is the insurance that covers your company from high-dollar claims. Stop-loss is typically purchased in two forms. One is a Specific Stop-Loss (employee or member) insurance, where coverage kicks in based on a per-person claim threshold. The size of the per-person deductible on that stop-loss policy will be predicated on the number of employees on your plan and your financial tolerance.
There are industry standard ranges for those individual deductibles (specific deductible) to guide your choice so that you can feel comfortable choosing your company’s specific deductible. But even with industry standards, you are still the plan sponsor and have total control over how much you are willing to risk financially before the stop-loss vendor picks up that claim.
The second kind of stop-loss policy typically purchased is an Aggregate Stop-Loss policy. That policy provides a ceiling, or cap on the total dollars your company is responsible for across all plan members. This keeps you as the employer from risking the responsibility of paying up to the specific deductible on each person and instead provides a worst-case scenario for you to budget from.
It is worth mentioning, that while the Specific Stop-Loss deductible is a fixed dollar amount per person, the Aggregate Stop-Loss deductible is not a static number, and it will fluctuate up or down based on the size of the plan membership. When reviewing an aggregate stop-loss number, it is important to remember that the number presented is just a good snapshot in time based on your current enrolled membership.
The terms of how the stop-loss insurance will pay those large claims are also important to note here. Some stop-loss plans will pay their portion once a claim is simply incurred, whereas other stop-loss contracts are only paid as a reimbursement after your company has first paid the claim in full. As the plan sponsor, you should pay close attention to which kind of policy they are purchasing, making this another crucial conversation to have both at plan inception as well as during your plan renewal with both your broker consultant and your third-party administrator.
There can be huge cost savings when symbiotic entities are functioning to create a self-funded plan that aligns with your company’s interests. Coordination with a TPA and PBM who put the interests of you, the employer, and your employees at the core of their work is the first step to reducing the expenses of the health plan and reducing expenses the employees are responsible for at the point of service. Any plan you design for your company with the duty of care for your employees will be an investment that is significantly worthwhile.
The plan however cannot be put together and left alone. The plan should be treated as an ongoing project, open to changes, additions, and reductions.
From time to time, the core vendor partners responsible for plan execution may need to be changed if service levels fail to meet expectations. There may also be a need to expand vendor partnerships or service providers to bring additional expertise and capability to enhance your plan’s performance.
Often, a specific member or group of plan members will need more customized clinical attention, and your plan will be able to increase its level of services to these members and save money on the associated medical claims by entering into service agreements with a vendor targeting their specific condition. This is frequently the case with diabetic management, Musculoskeletal (MSK) intervention, Advanced Primary Care, cancer guidance, and bundled surgical cost aggregators, to name a few.
These plan optimizations can often be launched at any time. They don’t have to wait until a specific date in time, such as a plan’s renewal date. With a self-funded plan, you will gain the flexibility to become more attentive to your workforce’s needs and as the steward of the plan’s resources, you should exercise this option when it makes sense.
In conclusion, understanding the educational components of a self-funded benefits plan is essential for you to maximize control and cost efficiency in your healthcare offerings. Despite the complexities involved, self-funded plans offer significant advantages for employers like yourself who are willing to navigate them effectively. By tailoring the plan design, leveraging cost containment strategies, and collaborating with experienced consultants, your company can achieve substantial cost savings while providing a higher quality of benefits to their employees.
In the dynamic landscape of employee benefits, self-funded plans represent a strategic opportunity to tailor healthcare offerings to your unique needs and priorities. With careful planning, diligent execution, and ongoing optimization, self-funding can pave the way for enhanced financial stability, improved member experiences, and long-term success in managing your company’s healthcare costs.