Limited Self-Funding in the Small Group Market

In the past it has always been a school of thought that a group should have a minimum of 200 employees in order to be a good candidate for a limited self-funded plan.  In a limited self-funded plan the goal is to spread out the risk of unanticipated/catastrophic claims across a large number of insureds.  However, with a healthy employee mix we are now seeing a reasonable offering of carriers and plan designs for groups with less than 50 employees and in some cases down to groups with as few as 5 employees.  These types of plans are becoming more appealing with the ACA in full swing.

This type of an arrangement allows an employer to insure their employees with the potential of having a return of unused claims dollars/savings as compared to a fully insured plan which has a fixed cost no matter what the claims or administrative costs are. 

A limited self-funded plan is set up by having a network of participating providers that you are paying for through part of the administration costs, along with claims adjudication, a claims fund and reinsurance premium (specific and aggregate stop loss insurance) which covers the cost of those potentially catastrophic claims.  The group would be subject to underwriting at either the group level (risk form general questions about whether the group has knowledge of any specific health issues cancer, heart disease  or employees out on disability as well as other potential issues) or for smaller groups each employee has to answer questions on an application regarding health issues so that the provider can determine whether or not the group is a good candidate for limited self-funding and to estimate the potential claims fund requirement.

These types of plans are only governed by ERISA and are exempt from the requirements of a State's small group mandate, however they can be as benefit rich as the employer desires.  These plans can be designed as HMO's, HRA's, HSA's as well as PPO's with custom benefits that can help reduce the overall cost.

A Limited self-funded plan is required to pay the Comparative Effectiveness Research Fee (funds the patient centered outcomes research institute which conducts research to compare which of two or more treatments is most effective)  and Reinsurance Assessment fee  (annual fee intended to lessen the impact of adverse selection in the individual market) when in force it was  exempt from the Health Insurance Industry fee (Helps fund PPACA implementation).    

With some of the available options you are still billed a fixed premium for the various levels of coverage, i.e. Individual, husband/wife, parent/children and family coverage.  This type of product is called level funded.  As the plan year progresses you are provided with very detailed claims reporting that shows you how your group is running with regard to what the anticipated claims experience was.  You are paying for your prefunded terminal liability which is collected during the first year so that in the event you terminate the plan claims will still be paid that were incurred during the covered period but submitted afterwards.  With this type of product the carrier would keep a percentage of the plan savings and then apply the remaining plan savings towards the following year's administrative costs. 

Ruth Sliviak

President ICS Insurance

Ruth Anne Sliviak is a registered representative with H. Beck, Inc. a broker-dealer located in Bethesda, Maryland.   By entering this website you acknowledge and agree that Ruth Sliviak of ICS-Insurance, Inc. is not (i) affiliated with H. Beck, Inc.; (ii)acting as your broker-dealer or investment advisor, or (iii) making any recommendations related to any trades or investment decisions.   Furthermore, you agree to hold the H. Beck, Inc. harmless and understand they will have no liability whatsoever for claims, losses, actions, damages, suits, or proceedings resulting therefrom.