Health insurance Models
Posted on Jul 18, 2024 05:56 PM
Self-Funded, Level Funded and Fully Insured Health Insurance plans.......we hear about them all the time. Some agents say some of these plans are horrible, others say they are great....so which is it?
Which funding model earns the title of the GREATEST HEALTH PLAN??!?!?!?!?!
HERE'S THE ANSWER: Self-Funding is definitely the best funding model, but it comes with the greatest risk and the greatest reward, so the other 2 models may come into play. At the end of the day, the type of funding you suggest for your clients should depend on their risk tolerance, cashflow and willingness to invest time into understanding how their health plan truly works.
Here's a brief overview of Self-Funding – we’ll provide an overview of the other funding types in subsequent posts:
SELF-FUNDED:
Self-funding is awesome because you're essentially building your own insurance carrier. You need someone to administer the claims (TPA), a network OR a firm to help administer an RBP scenario with no network, a Pharmacy Benefit Manager (PBM) to administer rx, and Stop Loss insurance to help offset any large claims. Granted, there are a lot more programs you can include into a plan to help achieve various cost containment measures, but these are the basics.
This type of arrangement is the way to go because you don’t have all the “Red Tape” from a traditional insurance carrier, your client can dictate most of what is included or not included in their SPD/Cert, and best of all the premiums for the stop loss insurance are WAY LESS than normal fully insured premiums. Best of all – no unreasonable “Trend” increases of 10-20% each year and haggling with the insurance carrier to drop it down to a “reasonable increase”.
The great part about self-funding can also be the worst part…. your client pays the claims as they come in….in a slow claims month, things are great! In a high claims month, not so much. When they offer a group health plan, employers can’t control when their employees and dependents go to the doctor or hospital and how much they use the insurance. They can incentivize members to go to certain facilities that meet various quality, efficiency and pricing metrics to save the plan and the member money, the can contract directly with providers to obtain the best pricing….heck, they can even incorporate wellness initiatives to try and avoid certain claims in the long run…..but at the end of the day, people are going to use the insurance and the employer will be on the hook for the claims.
For this reason, if a company wants to self-fund their insurance, it’s best to make sure they have sustainable cash flow on hand and understand what the worst-case scenario looks like financially. As you can imagine, this would not be the best idea for your small group clients – 1 or 2 high claims in a year could bankrupt some small businesses…. unless you’re able to provide them with a super low spec, self-funding is a not a good idea for your small groups.