WSJ Article on Self Funding Small Groups

[leevena]

The risk comes when someone gets cancer. Or gives birth to a special needs child that requires a lifetime of expensive care, or gets a chronic disease, etc. etc... On a normal health plan, the carrier gets to deal with that risk, and spread it over thousands, if not millions, of people. In a self-funded 10 person group with a $100,000 stop-loss and matching tail reserve, spending $80k/yr on care for a single employee's child will destroy the pool in a year or two.

THERE IS ALWAYS RISK.

This is not an issue with a small group, level premium self funded plan. Let's assume a group of 10 is offered a fully insured annual premium of $25,000 and a level premium m self-funded quote of $25,000. There is no risk in the first year becasue the level premium self funded is capped at $25,000 just like the fully-insured. If the claims come in below the maximum, the difference is refunded back to the employer. So there is no downside risk ($25k vs $25k) and the employer got some money back, so he wins.

Let's assume that group does have medical situation such as you described and the claims are going through the roof, say $200,000 in the first year. The employers maximum liability is still $25,000 and obviously will not receive a refund of any kind. The next year they will more than likely receive a large increase from the self-funded plan. So you now shop it with the GI fully-insured world which must use community-rating.

You only sell this type of a self-funded plan to groups that have a better than average risk, or to say it another way, a group that will get a lower cost than they would from the community-rated market.
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Which is why there is a need for agents.

Not all employers are suited for self-funded arrangements. Even employers who are suited for it might have employees who aren't suited for self-funding.

That's why we exist, to perform some due diligence and ensure they get the best solution for their business, not what we get paid the most on (or prefer).

Very true and well said.

 

[RayNY]

Correct me if I'm wrong (because I very well may be), but isn't a stop-loss tied to an Employee, not an Employer? All plans I've ever seen had a "per person per year" max, some had an aggregate as an option but it was usually very high (i.e. $25k per person, $250k aggregate over 10 people).

 

[leevena]

Correct me if I'm wrong (because I very well may be), but isn't a stop-loss tied to an Employee, not an Employer? All plans I've ever seen had a "per person per year" max, some had an aggregate as an option but it was usually very high (i.e. $25k per person, $250k aggregate over 10 people).

You may be confusing level-premium self-funding with what I will refer to as traditional self-funding. It is very different, more like a minimum premium plan. But to answer your question(s) yes, spec is tied to an employee. And yes, there is an aggregate, which is how you get to a yearly maximum cost for the employer. But the numbers you are using are incorrect. While there might be $25k spec, the aggregate becomes part of the "premium equivalent" that makes up the total cost.

 

[RayNY]

I think what I'm confusing is "level premium" and "claims".

Sticking with the example you gave (10 people, $25k level premium, $25k spec stop loss) what would be an appropriate aggregate?

Quick scenario: A stomach flu went through a 10 person office (bad tuna salad at the company picnic). Everyone ended up getting their stomachs pumped at the hospital. $5,000 bill for each person. Would that not result in $50k of out of pocket expense for the company?

 

[somarco]

Ray and LOM, have either of you sold self funded plans before? How many and what size groups?

 

[leevena]

I think what I'm confusing is "level premium" and "claims".

Sticking with the example you gave (10 people, $25k level premium, $25k spec stop loss) what would be an appropriate aggregate?

Quick scenario: A stomach flu went through a 10 person office (bad tuna salad at the company picnic). Everyone ended up getting their stomachs pumped at the hospital. $5,000 bill for each person. Would that not result in $50k of out of pocket expense for the company?

Check your email in this forum.

 

[LOM58]

I will try one more time. My point was never that self funding is never a good option for a small group; if it is, great, take advantage of it. My point was that if a small group sees self funding as a way to dodge Obamacare mandates, they may assume more risk and get into a self funded contract that normally would not make sense for their group, choosing to ignore the downside and focusing on the upside only to avoid the mandates.

And yes, I have sold numerous self funded groups. How many and what size are none of your business and is not germane to my ORIGINAL point. Perhaps you should re-read my original post:

"When I originally read this article, my initial thought was that I hope a lot of smaller groups don't jump from the fire into the frying pan to avoid Obamacare. If it didn't make sense to self-insure before Obamacare, it probably still won't after. Some exceptions, but many will probably still be worse off self-insuring. "

 

[somarco]

LOM, why do you say "If it didn't make sense to self-insure before Obamacare, it probably still won't after."

That sounds like a general statement rather that one that is case specific.
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If it didn't make sense to self-insure before Obamacare, it probably still won't after.

That sounds like a general comment, not case specific. Please clarify.

 

[Ann H]

Previously, there were extra risks for small groups in self-funding that are not risks anymore.

Guaranteed Issue in 2014 removed one risk. Now, if an employee's claims or the group total claims are extremely high, the small group can move to a guarantee issue policy, with community rating at the next renewal. Previously, moving to a traditional plan would have come at a shockingly high premium, but Obamacare took care of that for small groups.

Level premium funding is another risk removed. You just fund for the maximum, and if the claims are less you get a refund. For a group that works well with this strategy, the "maximum" will cost the same as a traditional plan, or less expensive. So, worst case scenario, you spend no more than you would have spent with a traditional plan. It's especially good for healthy young groups that could get a refund and/or could get a great rate set by the self-funded plan for maximum funding.

This is a game changer, and makes self-funding more palatable for small businesses. I can see this as an answer for several of my groups. I will agree that not all business owners understand it (nor all agents), so it won't be a great product for them. But for people who understand the concept, and use it for their healthy groups, it can be a win-win.

 

[LOM58]

Of course it was a general comment, or more properly, a general observation. Who was talking about a specific case? Honestly, do you know how to read? I will not waste anymore time trying to explain a 3 sentence observation.