Brokers and Employers Surviving "Disruptive Changes" -  In several of our recent articles, discussions and blogs we have been investigating methodologies to help Brokers and Employers survive the "Disruptive Changes" foist upon the U.S. Employee Benefits Marketplace in the past several years - mainly by PPACA/Obamacare.

Here's another - Brokers and Employers need to gain a thorough knowledge of Self-Funding (Self-Insuring), Stop-Loss Coverage, and the role of TPAs. The Broker - working with other advisors - needs to become the "Trusted Advisor" for the Employers and their Employees! 


Self-Funded Benefit Plans are a Risk Management Method in which calculated amounts of money are set aside to compensate for potential future claims (losses). A Self-Funded Health Plan is one in which the Employer assumes part or all of the risk for providing health care benefits to his Employees. The March 2014 issue of Rough Notes in an article titled "MEDICAL STOP LOSS" by Michael Moody notes "Self-funding employee benefits over time has become one of the most cost effective approaches to providing for employee health benefits".

With a self-funded plan the Employer takes control of the assets of his plan, invests to the organization's advantage, and eliminates the traditional Insurance Company's premiums and fees. When considering a self-funded plan the following should be taken into consideration:

          1). Self-funded plans are subject to Federal Regulations rather than State Regulations giving the Employer greater control over and flexibility with the plan.

          2). Using Brokers, Agents, and/or Consultants the Employer can design a plan, or set of plans, similar to a Traditional Fully-Funded Plan.

          3). If well communicated to the Employees, the Employer will be seen as the Benefit Provider creating an improved connection between the Employer and the Employees.

          4). With the Self-Funded Plan the Employer only pays benefits based on his Employee's histories and/or claims experience.

          5). The Employer retains control of his plan reserves maximizing interest income.

          6). The Employer does not pay state premium taxes - usually ranging from 2% to 3% of the monthly insurance premium.

          7) The impact of PPACA/Obamacare on self-funded plans has been minimal leaving the Employers with tremendous control and flexibility!

Stop Loss Coverage - In order to limit the potential risk (liabilities) to the Employer this element of Insurance is introduced. Most Employers purchase Stop-Loss Coverage (also called Excess Coverage) to minimize the impact of any large, catastrophic claims or excessive utilization by the Employees. The Rough Notes article mentioned above goes on to note "Most self-funded programs consider the acquisition of a well-designed stop loss program as a critical element to a successful , long-term operation". There are two main types of Stop-Loss Coverage:

           1). Aggregate Coverage - Insures against high claims incurred by the group as a whole above a certain dollar limit chosen by the Employer and agreed upon by the insurance carrier.

           2). Specific Coverage - Insures against a single catastrophic claim by an individual Employee that exceeds a dollar amount chosen by the Employer and agreed upon by the Insurance Carrier.

Choice of Plan Design - As with Traditional Health Insurance, the Employer has a choice of plans - including Tax-Advantaged Health plans like HSAs and HRAs. In addition, the Employer can include deductibles, co-pays,etc. as with Traditional Plans. Generally, the Group Medical Plan is the main focus of a Self-Funded Program. Other health related benefits are often included, such as dental, vision, prescription drugs, and short-term disability. Generally high risk, low frequency coverages, such as long-term disability; accidental death and dismemberment and life insurance are not included in the self-funded plan design.

Limiting Risk - An additional technique for substantially reducing risk and inherent claims (losses) is to implement a Wellness Plans and Employee Assistance Plans (EAPs). More and more statistical information is being generated by studies to show the ROI for implementing and maintaining these plans.


Administration of the Self-Funded Plan by Third Party Administrators (TPAs) - The Plan Administration is generally performed by a TPA. These organizations are specialists in claims management, compliance issues, and other day-to-day management functions inherent in self-funding. The TPA works with the Employer, Broker and Insurers/Carriers of Stop-Loss Coverage to design a plan to meet the needs of the Employer and Employees - on a near and longer term basis.

The Design, Implementation, and Management of a Self-Funded Plan requires the input and integration of Brokers/Consultants, TPAs, and Carriers combined with a well-planned  and implemented Employee Education, Communication and Enrollment Process.

For more information about what Brokers and Employers require to gain a thorough knowledge of Self-Funding, Stop-Loss Coverage, and the role of TPAs in the marketplace Email - or Call - 216.577.5579!.


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