Partial Self Funding of Group Health Insurance – A Better Alternative to Cutting Benefits 9v.1888932-2946.ws

The average cost of employer-sponsored family health insurance premiums has more than doubled since the turn of the century (Kaiser Family Foundation, 2008). This spike in health care costs, coupled with current economic pressure, has forced employers to look at a wide spectrum of options for containing the cost of their employee health plans. Most of these options lack ingenuity and simply pass on more of the cost and risk to the employees in one fashion or another. Employees are left wondering how they will cover the additional out-of-pocket costs that have been transferred to them in recent years.

There is, however, a growing contingent of companies who have discovered that self-funded or partially self-funded plans are a better way to control costs and maintain coverage. A 2006 SHRM article reported that “about half of all employees with health coverage are in plans that are fully or partially funded by the sponsoring employers (Woodward, 2006). Yes, you read that right – about half – and that was three years ago!

There is a big difference between fully self-funded and partially self-funded plans. “The general underwriting rule is that it becomes an advantage to fully self-fund if an employer has 1000 employees or more.”(Wells, 2009). A partially self-funded plan, however, can afford a smaller organization many of the advantages of a fully self-funded plan with less risk and responsibility. Those advantages include 1) substantial savings in year one 2) relatively flat increases in subsequent years 3) flexibility with plan design 4) the ability to maintain a strong benefits package to bolster recruiting and retention efforts.

A partially self-funded plan design that has gained popularity since 2003 is the MERP (Medical Expense Reimbursement Plan). The MERP is simply one form of an HRA, based on the provisions of Sections 105 and 213 of the IRS Code which allow employers to reimburse employees for qualified medical expenses. The MERP, however, has several advantages over a traditional HRA including: 1) greater potential for savings 2) more flexibility with plan design 3) reimbursement of claims upon occurrence rather than up-front funding of accounts and 4) availability of claims data and utilization reports.

The typical savings in year one for companies who implemented a MERP plan runs at $1,000-$1,500 per insured employee per year. What would that mean for your organization – $30K, $50K, $100K? In most cases, the plan design can be constructed to closely mirror what was in place before so you get the savings without having to sacrifice the benefits that are so important to your current and future employees.

Partial self-funding is a proven strategy for putting premium dollars back in your pocket. The momentum behind partial self-funding will continue to build as health care costs soar. Any organization striving to be fiscally responsible and maintain strong employee relations should invest a little time to learn how a partially self-funded plan can be a better option than simply allowing your employees to absorb the additional costs each year.

References

1. News Release, September 24, 2008, Kaiser Family Foundation, http://www.kff.org/newsroom/ehbs092408.cfm

2. HR Magazine, Vol. 51, No. 8, August 2006, Nancy Hatch Woodward

3. HR Magazine, Vol. 54, No. 9, September 2009, Susan J. Wells

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Update to Health Care Reform health news kaiser

State health insurance exchanges are starting to be created as one of the most important component of healthcare reform for small businesses and individual households. Medical Health Insurance Exchanges will facilitate the purchasing of individual and small group insurance via State run websites. Customers will be able to go on line and be guided by efficient insurance exchanges permitting them to research, shop, compare and buy medical health insurance.

In 2014 Each State or Regional Exchange will perform important functions when the health reform law expands coverage to around 30 million Americans. Using the web site might be difficult for some people so there is going to be a Toll-free phone number and local offices to explain the alternatives. Once an individual has an understanding of their options and the details of each health plan, consumers can request help with an application for coverage,

The role of a personal insurance agent is very helpful for consumers to understand the complexity of medical health insurance. It looks like the role of independent insurance agents within the framework of the exchange model will still be helpful however it is not clear yet how they will be linked to the system.

These new Exchanges will become a gateway for State Medicaid programs as well as other public health programs. One of their mandates will be to decide one’s eligibility for a public plan if available and help with their enrollment. Individuals can still buy health on their own. Anyone that is eligible for premium subsidies has to use the exchange.

States have been laboratories for innovative government solutions. Right now states are researching exchange marketplaces. They will be able to set one up as an individual state, as a coalition with other states or use a federal design for their residents. A federal insurance plan will always be an option within any exchange as one of the choices.

Each State’s efforts to enact national health care reform have proceeded at different speeds. States are already working to establish Exchanges. Almost fifty States accepted grants to help in their research and planning stages of Exchanges. More than 50% of them are already working with their legislature to implement an exchange by the 2014 deadline. A few states have decided not to do anything at this time.

In a resource that has been set up by the Kaiser Family Foundation you are able to keep track of what states are doing in regards to creating health insurance exchanges under the Affordable Care Act. The Kaiser Family Foundation’s Exchange Monitor always features new data and was described in our last Blog where you can access their information.

In our upcoming Blog I will include details of developments for Washington State Health insurance clients as well as policies provided by the LifeWise and Regence insurance companies to help individuals and bloggers who need more specific information. If you would like to provide helpful news please don’t hesitate to join in our forum.

Louis Hammer
Over 25 years experience in the Insurance industry.
Masters of Administration

Update to Health Care Reform