What is a self insured group health
plan? A self-insured group
health plan is one in which the company assumes the financial risk for provide
health care benefits to its employees. In realistic conditions, self-insured
employers pay for each out of pocket claim as they are incurred as a substitute
of paying a flat premium to an insurance carrier, which is known as a fully insured
plan. In general, a self-insured employer will set up a special trust fund to allocate
money (company and employee hand-outs) to pay incurred claims. According to a
2000 report by the Employee Benefit Research Institute, around 50 million employees
and their dependents receive settlement through self-insured group health plans
sponsored by their companies. This represents 33% of the 150 million total
participants in personal employment based plans nationwide.
Why do companies self fund their health plans?
There are many reasons why employers choose the
self-insurance option. The company can customize the plan to meet the specific
health care needs of its workforce, as opposed to purchasing a
'one-size-fits-all' insurance policy. The employer maintains control over the
health plan reserves, enabling maximization of interest income - income that
would be otherwise generated by an insurance carrier through the investment of
premium dollars. The employer does not have to pre-pay for coverage, thereby
providing for improved cash flow. The employer is not subject to conflicting
state health insurance regulations/benefit mandates, as self-insured health
plans are regulated under federal law of ERISA. The employer is not subject to
state health insurance premium taxes, which are generally 2-3 percent of the
premium's dollar value. The employer is free to contract with the providers or
provider network best suited to meet the health care needs of its employees.
Self insurance the best choice for every company
Since a self-insured employer assumes the risk for paying
the health care claim costs for its employees, it must have the financial
resources (cash flow) to meet this obligation, which can be impulsive.
Therefore, small employers and other employers with poor cash flow may find
that self-insurance is not a viable option. It should be noted, however, that
there are companies with as few as 25 employees that do maintain viable
self-insured health plans. While the largest employers have sufficient
financial reserves to cover virtually any amount of health care costs, most
self-insured employers purchase what is known as stop-loss insurance to compensate
them for claims above a specific dollar level. This is an insurance contract
between the stop-loss carrier and the employer, and is not deemed to be a
health insurance policy covering individual plan participants.
Administers claims for self-insured group health plans
Self insured employers can either administer the claims
in-house, or subcontract this service to a third party administrator (TPA).
TPAs can also help employers set up their self-insured group health plans and organize
stop-loss insurance coverage, provider network contracts and utilization review
services. Any payments made by employees for their coverage are still handled
through the company’s payroll branch. on the other hand, instead of being sent
to an insurance company for premiums, the hand-outs are held by the company
until such time as claims become due and payable; or, if being used as assets,
put in a tax-free trust that is controlled by the company. Self-insured group
health plans come under all applicable federal laws, including the, Health
Insurance Portability and Accountability Act (HIPAA), Employee Retirement
Income Security Act (ERISA), the Americans with Disabilities Act (ADA), Consolidated
Omnibus Budget Reconciliation Act (COBRA), the Age Discrimination in Employment
Act, the Pregnancy Discrimination Act, the Civil Rights Act, and various budget
settlement acts such as Tax Equity and Fiscal Responsibility Act (TEFRA), Economic
Recovery Tax Act (ERTA) and Deficit Reduction Act (DEFRA).
