When healthcare costs began to skyrocket and it was clear there was no end in sight, employers started to look at options beyond the typical group health plans they and their employees were accustomed to. Turns out, companies of all sizes have different types of employee benefits available to them—and we’re not just talking about different carriers and deductibles.
“Fully insured plans definitely offer the most convenience, but many companies are surprised to find out there are alternatives,” says Terri Armstrong, director of benefits for XMI. “And with increasing costs, they’re definitely interested in learning more.”
Education is key to understanding the types of employee benefits available to your company. Start with the basics found in these definitions.
Fully insured plan:
This is what you probably picture when you think of health insurance. Under a fully insured plan, an insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid to the carrier by the employer. The costs in the year of the plan are predictable, but large employee claims costs from one year can affect future premium amounts.
As a general rule, employers with fewer than 50 employees have fully insured group medical benefits, but in the face of increasing premiums, more smaller employers are choosing alternative plans.
Employers with self-funded (or self-insured) plans retain the risk of paying for their employees’ health care themselves, either from a trust or directly from corporate funds. The employer still contracts with an insurance carrier (or third-party administrator) to access their provider network and to handle the administration of claims.
Healthcare costs under self-funded plans can be unpredictable. Few claims and few expensive illnesses mean employers have lower healthcare costs. Many claims coupled with expensive illnesses increase healthcare costs exponentially.
Self-funded plans used to be the domain of companies with more than 200 employees, but increasingly smaller companies are seeing the cost-benefits of self-funding.
Companies with self-funded health plans typically carry stop-loss insurance to reduce the risk associated with large individual claims or high claims from the entire group. The employer self-insures up to the stop-loss attachment point, which is the dollar amount above which the stop-loss carrier will reimburse claims. Stop-loss insurance comes in two forms: individual/specific stop-loss, which limits the amount a company pays toward an individual’s claims ($25,000, for example), and aggregate stop-loss, which protects your company against high total claims for the health care plan ($500,000, for example).
Also known as a partially self-funded plan, this is basically a self-funded plan with built-in stop-loss thresholds—both individual and aggregate—that kick in at a lower level. In general, a level-funded plan provides the potential for cost savings over a fully insured plan, while protecting employers from the risks associated with self-funding. Typically small companies (with fewer than 50 employees) that are interested in self-funding plan land on a level-funded plan.
Third party administrator (TPA):
If your company has a self-funded or level-funded plan, the company you contract with to process your claims drops their “insurance carrier” moniker and becomes a third-party administrator. In short, the TPA services the plan, but does not fund it.
In all of the above alternatives to fully insured plans, insurance carriers are still involved in the process, and thus adding to the costs. With self-funded and level-funded plans, you still need their networks and their TPA services. But many employers have opted to cut out insurance carriers altogether and instead fund their group employee benefits risks with captives. Captives are a form of self-insurance in which the insured owns the insurer.
Captives can help lower volatility and year-over-year premium increases by bringing groups of employers together and distributing risk across multiple groups and stop-loss insurance. Employers can form their own captive or join one that already exists.
Ready to explore all the employee benefit options available to your company? Trust XMI to help guide you through the pros and cons to the right decision. Get in touch at 615-248-9255 or email@example.com.