Gap Plans

[healther]

Assurant has been pushing self-funded for small groups recently. If I remember correctly they are even providing built in stop-loss coverage. And it is RX only UW for anything over I think like 20 employees. Interesting product, but with a group that small it seems that 1 large claim could blow the premiums sky high on renewal... maybe I am wrong.

That is a concern, I'm also a bit concerned about claim lag. Odds are it wouldn't be an issue but, having worked for many small businesses, one adverse claim lagging beyond the run-out period could be devastating to most small businesses. IMO, the only intriguing aspect is the ability to side-step community ratings.

 

[scagnt83]

IMO, the only intriguing aspect is the ability to side-step community ratings.

Another selling point is the reimbursement of premiums if claims do not hit the yearly threshold.

 

[Yagents]

One could argue that a Gap plan negates the need for a HSA to a large extent.

But could they not just have general "illness" instead of critical illness and still qualify for a HSA? For many families with kids a general illness benefit would be much more useful than critical illness. Especially since you can get an accident & CI policy for around the same price or lower than a Gap plan.

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General illness (doctor visits), is not eligible. Only the items below.

Publication 969 (2014), Health Savings Accounts and Other Tax-Favored Health Plans

Other health coverage. You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan.

You can have additional insurance that provides benefits only for the following items.

• Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property.
  
  [*] A specific disease or illness.
  
  [*] A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

Accidents.

Disability.

Dental care.

Vision care.

Long-term care.

 

[healther]

Another selling point is the reimbursement of premiums if claims do not hit the yearly threshold.

It will be interesting to see how many reimbursements are realized in the level-funded market targeted at small businesses. One lost employee could easily result in an underfunded pool. I will be treading lightly on that selling point.

 

[somarco]

Tyler, everyone has a different opinion about self funded, what works, and what doesn't.

When I was a rep for one of the largest MGU's in the country we would self fund down to 25 lives. Some of our competitors went down to 10 and one offered a modified self funded plan with monthly rolling agg down to 5 lives.

The specific protects the loss fund and the agg. We suggested picking a spec level that was 10% of the expected claims and that worked out well most of the time. A 20 life group could have expected claims of $250k so a $25k spec would work.

Of course they can go lower if they want but at a higher fixed cost.

I don't know if rolling monthly agg's are still available or not but if they are that provides more cash flow protection, albeit at a cost.

The real beauty of the self funded approach then, as now, was the ability to bypass state requirements and just comply with federal. Of course now that DC pretty much sets the rules for everything it is not as beneficial, but you do still have some premium tax savings.

I had a few small cases blow up but most of them rocked along just fine.

The employer needs to have good cash flow and be willing to fully fund the agg loss fund for it to work.

I think Lee Vena has some small group products that can be considered as well.

Another selling point is the reimbursement of premiums if claims do not hit the yearly threshold.

If you are still referring to self funded, there is no reimbursement of premiums.

Deposits to the loss fund are the property of the trust and (eventually) the employer if the plan is dissolved. The beauty of self funded is if you "over-fund" xs monies can be used to reduce future loss fund deposits.

 

[scagnt83]

If you are still referring to self funded, there is no reimbursement of premiums.

Deposits to the loss fund are the property of the trust and (eventually) the employer if the plan is dissolved. The beauty of self funded is if you "over-fund" xs monies can be used to reduce future loss fund deposits.

I dont do self funded plans, so I know enough to be dangerous. But the way it was explained to me by Assurant was that if they do not hit a threshold on claims then a pro rata portion of the premiums are refunded to the business... perhaps it went to the next years premiums... but it was something like that. I will have to listen closer & ask more questions the next time that rep calls me.

 

[somarco]

If it is a true self funded plan the only premiums are for spec and agg. I have seen some modified self funded plans in the past that looked more like fully insured, dividend refund plans.

Odd ducks. Very expensive. The "refund" is almost nil.

 

[healther]

If it is a true self funded plan the only premiums are for spec and agg. I have seen some modified self funded plans in the past that looked more like fully insured, dividend refund plans.

Odd ducks. Very expensive. The "refund" is almost nil.

The most recent trend in our region seems to be level-funded programs that do look more like fully insured plans. By structuring the program to fit the guidelines of self-funded they are able to side-step community rating as well as the premium tax. The pool is funded by monthly contributions that are distributed to plan administration and the funding pool (hence level funded). If the group does not deplete the funding pool within the allotted time (I've seen 18 months) then the portion allotted to the pool is subject to refund. However, that amount is typically 25% of the monthly contribution and will most likely be consumed. It's an intriguing option for smaller, healthy groups.