The implementation of the Affordable Care Act (ACA) has forced consumers and business owners to become creative. To maintain compliance with the law and at the same time find cost-effective solutions is the goal – and in pursuit of that goal we now have some new tools.
Self-Funding has traditionally been utilized by large companies to provide health insurance for their employees. At its’ core, self-funding involves the company taking on a portion of the risk related to health care expenditures. To prevent the possibility of catastrophic expenses, the company then purchases stop-loss insurance. Stop-loss insurance isn’t designed to cover minor claims – it only kicks in when pre-established, sizable limits have already been met.
In order to create products that are more appealing for small companies, many insurance carriers have developed self-funded products that suit small business very well. There are a couple innovations to point out.
- Smaller Group Sizes – some carriers will allow as few as 10 enrolled employees
- Lower Stop Loss Limits – Several carriers will go as low as 110% for aggregate deductibles
- Tail Coverage – At the end of a contract year, there may be claims that have been incurred but not paid. The tail refers to the amount of time after the contract year that the stop loss insurance will continue to cover claims. Some insurers will cover indefinitely, some for 5 years, some for 3 months. It’s important to understand this portion of the contract.
- Level Funding – Many small group contracts are written so that the monthly premium funds the maximum liability under the contract. At the end of the contract year, if the group performed well then there could be a refund. However, there is never a payment due for higher than expected utilization.
In addition, self-funding provides some nice benefits on the cost as well. Self-funding allows the company to avoid several taxes that are built into fully-insured plans. Furthermore, the tax on insurance premiums is only assessed on the stop-loss premium which is significantly smaller than the fully insured premium.
Self-funding isn’t for everyone, or every business. However, recent industry innovations means that it should be considered for more businesses than ever before.
Give us a call @ 800.303.6329 or send us a message to continue the conversation.
This blog is intended to be educational in nature. It is not advice and should not be interpreted as such. If you’re interested in discussing options for insurance coverage in PA or MD, we are happy to provide our expertise.