Research Proposal on "Self-Funding Health Plans Insurance"

Research Proposal 10 pages (2651 words) Sources: 8 Style: MLA

[EXCERPT] . . . .

Self-Funding

The issue of healthcare has been one of continuous debate for well over a decade. In recent months the healthcare debate has become the center of attention. A general consensus exists concerning the need to reform the healthcare system. However, the manner in which this reform should take place is a hotly contested issue. Citizens and lawmakers alike are aware of the rising costs of health insurance and the many people who are uninsured or underinsured. There are many different opinions concerning the status of healthcare options in the United States. For the purposes of this discussion self-funded healthcare plans will be examined. The research will focus on the advantages and disadvantages of self-funded plans. The investigation will also focus on when self-funding is appropriate and what precautions should be taken.

Definition of Self-Funded plans

According to an article published by the state of Colorado, there are two types of employee benefit plans: fully insured or self-funded. The article explains that under a fully funded plan the employer actually contract with a commercial health insurance company ("Erisa"). Under this type of plan "the insurer covers the employees and dependents ("What is a self-funded plan?)." Under such a plan all of the risk is assumed by the insurance company ("Erisa"). When a fully insured plan is utilized by employees there are certain state and federal laws that must be followed ("Erisa"). A self-funded plan is defined as a kind of job-based health insurance plan, that is paid for by the employer ("What is a self-funded plan?). It is also important to point out that although the aforementioned plans are referred to as self-funded ("What is a self-funded plan?). Employers are not usually forced to assume all the responsibility associated with claims that are catastrophic. Instead the employer purchases a type of insurance called a stop-loss or excess-loss insurance. This type of insurance allows the employer to be reimbursed when claims surpass a particular amount ("What is a self-funded plan?). In addition, the stop loss insurance allows the employer to be reimbursed for claims associated with a single person or related to an entire group of employees ("What is a self-funded plan?).

In addition when an insurance plan is self-funded,

" the employer keeps the risk to pay the bills and usually hires a plan administrator to process the claims. When an employer self-funds the plan, it is generally not subject to state laws and regulations -- so state mandated benefits, state prompt payment rules or standards of network adequacy don't apply. Sometimes insurance companies act as an administrator to process claims for an employer self-funded plan. In these circumstances and wearing the plan administrator "hat," the health plan is not subject to state laws and regulations ("Erisa")."

Employers are at liberty to choose the types of health insurance plans that they want to carry for employees. The type of plan that an organization chooses is usually based on the size of the organization. For the most part many large organizations offer fully funded plans, this is particularly true of large corporations and government jobs. In the past fully-funded plans have been the norm, however in recent year many employers have decided to utilize self-funded plans as a way to reduce costs.

Although many organizations have adopted the use of self-funded plans other organizations have been slow to adopt such a plan. The slowness to adopt self -- funded insurance is due, in part, to the lack of information available about this type of plan. In an effort to present organizations with the type of information needed to make a decision concerning the implementation of such a plan, the next section of this discussion will focus on the advantages and disadvantages associated with self-funded plans.

Advantages and Disadvantages of Self -- funded Plans

Any type of health plan has some advantages and some disadvantages; self-funded healthcare is no exception. Currently, organizations both large and small are faced with the dilemma of choosing the best type of healthcare that will fit the needs of their employees. The health insurance plan that an organization decides to implement will be dependent on the advantages and disadvantages offered by the plan. As it pertains to self-funded plans the advantages and disadvantages can be found below.

Advantages

There are several advantages associated with self-funded plans. These advantages are inclusive of the following,

1. Costs- Many organizations are switching to a self-funded plan to reduce the costs associated with insuring employees. According to an article published by physicians care, the self-funding option has costs benefits because the costs are fixed. This is different from a fully insured plan that has fluctuating premiums. The article explains that

"By funding claims directly, an employer avoids the costs of claim reserves, retention to cover the insurance company's administrative costs, profit margin, risk charges, premium taxes, and a contingency margin, which are included in an insured premium on top of the costs of expected claims. Today, these reserves and retention charges can range from 10% to 30% ("Advantages of Self-Funding")."

Additionally as it pertains to costs self-funded plans have a flexibility which allow for better management of costs. That is organizations that adopt a self-funded plan have a greater ability to predict the cost associated with the implementation of such a plan.

2. Information Management- Both employees and employers have access to healthcare information ("Advantages of Self-Funding"). Monthly reports are accessible for anyone who is a part of the plan. Participants are always made aware of their status with the plan ("Advantages of Self-Funding").

3. Better Financial Control- under a self-funded approach there is a greater amount of financial control because employers have the ability to fund claims as they come due instead of having to fund them in advanced. This is important because it allows the company to invest the money instead of the insurance companies using advanced premiums for their own investments. ("Advantages of Self-Funding"). In addition, companies that work with organizations in their self-funding efforts are able to supply reports to the organizations so that they can see where all the money goes ("Advantages of Self-Funding").

4. Flexibility -Self-funding affords employers with the opportunity to devise a health benefit plan to address needs that are unique to their employees and the overall objectives of the company ("Advantages of Self-Funding"). Gammon (2006) also explains that flexibility is also an advantage because it permits employers to alter the type of coverage that employees receive as they see fit and when such changes are necessary (Gammon, 2006).

5. Avoiding State Mandates. In addition to the aforementioned advantages associated the self-funded insurance, it is also exempt from state mandate in a way that traditional insurance is not ("Advantages of Self-Funding"). Gammon, 2006 also explains that

"Self-funded employers don't have to comply with state mandates that require minimum coverage for things like chiropractic and mental health care. Self-funded employers can decide if they want to pay for mammograms, bariatric surgery, substance abuse and other treatments…on the financial side, self-funded employers aren't subject to 2% to 3% state premium tax (Gammon, 2006)."

The overwhelming advantage associated with self-funding seems to be the amount of control that both employees and employers have as it pertains to the type of insurance coverage that they have. This control is associated with the flexibility inherent in self-funded plans. The organizations that adopt such a plan also have more financial control as it pertains to investment and costs. Under a self-funded plan organizations can better control costs and it also affords them the opportunity to predict costs and make the appropriate provisions accordingly.

Disadvantages

The primary disadvantage associated with self-funded plans is the risks that are assumed. Schreck (2005) asserts that

"The biggest issue in self-funding is covering your company's vulnerability to risk. With health care, catastrophic events and high utilization by employees can make for exorbitant claims. Even self-funders will need to purchase other insurances to cover both of these variables…every company will need 'specific stop-loss' reinsurance, which covers claims over a certain threshold and sets a limit for what the self-funder is liable for (Schreck, 2005). "

As was previously mentioned in the research, organizations gat retain aggregate stop-loss reinsurance, which will provide them against costs associated with a catastrophic event or high rate of use (Schreck, 2005). Such protection is necessary if the risks associated with self-funding are to be neutralized (Schreck, 2005).

So then the major disadvantage that comes from this type of plan is associated with not having the appropriate type of risk management. For this reason organizations that adopt this type of plan should seek the guidance of professionals in the field; in doing so the disadvantage can be avoided.

When is Self-Funding appropriate

According to Schreck (2005) organizations that offer self-funded plans should have at least 250 employees. The article explains that organizations will less than 250 employees will not be successful in offering such a plan. However this assertion is challenged by newer types of self-funded plans. These plans are specifically… READ MORE

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