Many of us in the industry are evaluating ourpositions and client recommendations after the recent announcementon the delay of PPACA's employer mandate penalty.

How does this affect the drive forward for the self-funded worldand the small employers that are fully insured with plans to moveto self-funded in 2014? The plan should be to stay on course.

There seems to be a lack of knowledge in the broker worldregarding self-funding, and now we have another year to adjust thelearning curve. Many brokers ask why they would—andshould—recommend self-funding employee benefit plans to theirclients.

Among other reasons:

• Self-insured plans are not tied to community rating fordetermining premiums as are fully insured arrangements.
• Self-funded plans are more adept at allowing employers todetermine what its true costs of coverage are. With this data,employers can address high-cost services more directly.
• Self-funded plans are likely to be in a better position tomanage future uncertainty because they escape greater regulationthat the health insurance industry faces.
• Review of premium increases by the Department of Health andHuman Services under PPACA doesn't apply to self-funded plans.Premium increases are most often based on claims experience.
• Self-funded plans avoid the adverse selection insured plansfrequently encounter.
• Self-funded health plans, for most employers, are governed bythe Employee Retirement Income Security Act of 1974. ERISA preemptsstate insurance regulations, meaning employers with self-fundedmedical benefits are not required to comply with state insurancelaws that apply to medical benefit plan administrators. On theother hand, insured plans must comply with some of ERISA'srequirements.
• Self-funded plans avoid the essential health benefits mandatesof PPACA. One large insurance company in 2012 estimated that theservices mandated for fully insured plans by PPACA will increasepremiums from 7.5 percent to as much as 15 percent.

Because of the differences in the rules governing self-fundedplans versus those governing fully insured plans, some employerswho've not previously thought self-funding was a better approach toproviding health care benefits are now revisiting the issue.

Size matters

The recommended minimum size for self-funding is usually 50lives but we're able to quote groups smaller than 50 lives due tothe change in the stop loss market. The best size is 50-plus. Somecarriers have minimum numbers for certain plans.

There any minimum employee participation requirements for asmall employer to be offered stop-loss insurance. The employerplans with low participation rates (below 75 percent) are notgenerally considered candidates for stop-loss coverage. Somestop-loss insurers have slightly higher or slightly lowerparticipation thresholds, but on average, anything below 80 percentwill typically not receive a stop-loss quote. If the employer iswilling to complete a statement of health form or better yet,contribute to the employee only cost the participation numbers areusually met.

The stop loss amount or individual specific is generally basedon the size of the employer and how much risk they are willing totake.

Stop-loss considerations

Aggregate stop-loss insurance protects the employer against hightotal claims for the health care plan. Any amounts paid by aspecific stop-loss policy for the same plan would not count towardthe aggregate attachment point.

As employers' enrollments have remained flat or have beenreduced due to the current economic environment, there hasn't beena material change in the common attachment points desired byemployer for both small and larger plans. The proportional use ofstop-loss among various group sizes has remained consistent. Interms of overall growth, as the use of self-insurance has grownover the past two decades, the market for stop-loss insurance hasexpanded proportionally.

PPO networks are used for self-funded clients to control cost.The network that is the best fit for the client is usually based ongeography. Most TPAs are able to work with many local and nationalnetworks.

In certain cases the carrier will quote both a “laser” and a“no-laser” option and let the client chose which they prefer. Alaser is a higher specific on one individual than all otheremployees. An attempt is made to provide as much medicalinformation as possible to the carrier to avoid lasers. If thegroup can provide complete two to three years of claims experience,including large and potential claimants, the carrier could possiblyaccept a standard disclosure form.