Employers want to provide themselves and their employees quality health benefits. Employers also would like to improve their cash flow, which is smart medicine for the health of the business. With the costs of some traditional health care plans soaring in recent years achieving these two goals has become increasingly difficult. Exploring strategies that are commonly used by large corporations and businesses (businesses having 5000+ employees), might benefit your business as well.
Flexible-funding is based on the concept that health insurance is designed to protect against two different areas of exposure; predictable costs and unpredictable costs.
Predictable costs should be funded and paid by the employer. Purchasing insurance to cover predictable claims is not cost effective due to loads for overhead, taxes, profit, sales commission, reserves, etc., in addition to the full amount of the predictable claims. Self-funding these predictable claims, results in a direct saving of medical insurance premium loads.
Unpredictable costs, such as shock claims or catastrophic losses, are justifiably insured through an excess-loss contract with an insurance carrier. Premiums are much lower for this type of coverage, so the insurance company loads are correspondingly lower. These are considered your fixed costs.
Flexible Funding can give your business the potential for substantial savings. It allows you as the owner to direct the funding of your own plan. Your company helps pay for the actual medical expenses your employees incur. If you choose, your company could also help pay for dental, vision, and prescription costs. Depending on the size of the business, you can choose the benefits you would like to have. This also works very well if the company has employees in various locations. It is possible to fit different provider networks to the different locations if that works better. It may appear complicated but after the plan is in place, all you do is pay your monthly premium and use your plan as you would any other health insurance plan. The difference is how your monthly premiums are managed. A Third Party Administrator does all the management.
In a fully insured plan, the insurance company retains all of your premium dollars. If your group is relatively healthy, you may have paid a great deal more in premiums than your healthcare expenses. With Flexible Funding just a portion of each dollar you would typically spend on premiums goes to an insurance company. The rest goes into your Claims Fund (a trust checking account from which your claims are paid). No additional risk is incurred. All you pay is your monthly premium. You know upfront exactly what your maximum claim and insurance costs will be for the next 12 months.
The question arises what if one or more of my employees has a serious illness or accident? Will I, the employer, have to pay for these expenses? This is the difference between a Flexible Funded Plan and a Self-Insured Plan. In a Flexible Funded Plan you are carrying health insurance from an insurance company this is called Specific Excess Loss Coverage and Aggregate Excess Loss Coverage. This is health insurance provided by an insurance company with a high deductible. The specific amount of the deductible is determined by the needs of your health plan based on plan design and underwriting information. The health insurance company benefits are there to protect you. These are explained in more detail below.
The Third Party Administrator
Handles the administration of submitted claims
Bills you for payable claims
Pays the claims from monies received from you
At the end of the year any unused monies in the Claims Fund are yours to apply against future plan costs. Depending on your claims, your savings can be substantial.
The Third Party Administrator helps limit your liability and financially protect your business.
A portion of each health plan dollar goes into your Claims Fund (a trust checking account used to pay claims for your health plan).
A portion of your health plan dollar goes to an insurance company as premium to help protect you from large losses and to pay for any fully insured benefits (life insurance, Ad&D, etc)
The administrator on your behalf pays providers from your Claims Fund for covered claims.
If your covered claims exceed either the agreed upon specific an/or aggregate excess insurance attachment points, the insurance company will deposit into your claims fund the dollars necessary to fund claims (subject to contract maximums). The attachment point is the dollar of claims where the insurance company is paying the claim. It could be reached by one individual having claims or a combination of insureds having claims.
If a positive balance remains in the Claims Fund at the end of the plan year the remaining monies are yours to apply toward future plan expenses.
Specific Excess Loss Coverage
This helps protect you from the risk of a large, single claim. This is when the insurance company takes over payment of the claim.
If a claim exceeds an amount predetermined by you (Specific Deductible), the insurance company, pursuant to the terms of your Specific Excess Loss Coverage will reimburse the excess. This excess over the Specific Deductible does not count towards the Aggregate Claims.
You have a choice of Specific Deductibles from $2,000 to $50,000 per covered individual. This is not the deductible an individual has before benefits are payable, but the point when the insurance company starts paying the claim instead of the monies coming from the Claim Fund.
Aggregate Excess Loss Coverage
This helps limit your liability for all your employee as a group. When the total amount paid for claims from your Claim Fund has reached the maximum of your fund, this is the point the insurance company pays the claims.
Monthly Aggregate Claims Advance
This coverage puts a monthly cap on your Maximum Aggregate Claim Liability to assure you and your cash flow are not burdened by the prospect of excessive claims early in your plan year. Monies are advanced if claims exceed your Claim Fund in the early part of your plan. These monies are then repaid as the year progresses. Once again, all you pay is your monthly premium.
A Prudent Business Decision
The decision to use Flexible Funding for your business should be done prudently. The Administrator can help you control risk in a number of ways.
Your potential losses from a single claim or may claims will stop at a predetermined level, at this point the Excess Loss Coverage reimburses the excess claim amount.
With the Monthly Aggregate Claim Advance, you can put a monthly cap on your Maximum Aggregate Claim Liability to ensure that excessive claims early in your plan period do not adversely affect your business cash flow.
Your contracts can be set up to ensure that, should you decide to terminate at the end of the plan year, your financial exposure to claims incurred near the end of your plan period will be minimized.
Terminating Your Plan
You can be protected from excessive liability on claims that may have been incurred, but not yet paid. This is known as "runout". For example, your Specific Excess Loss Coverage can be written to include an extra three, six, or twelve months for the claims to be paid and still qualify for reimbursement. This further limits your liability even if some claims are not paid during the contract year. Aggregate Excess Loss Coverage may also be purchased with a three-month "runout" period.
Terminal Liability Coverage
This gives you an additional option to protect yourself from claim runout. The premium for this is payable only at the time of termination and there is no additional charge during the Plan year for this benefit.
You Receive Monthly and Annual Reports
You will know where your benefit dollars are going. By using this information you can adjust your plan benefits through different deductibles and co-payments to improve your cash flow and employee benefit package.
What do I do now?
Flexible Funding Health Insurance could be a valuable cost saving program to provide quality health care benefits to your employees. In place, the plan will seem like other health insurance plans you have had. You pay the monthly premium and use the plan benefits. The difference is how your monies are managed and the range of choices of benefits you have.
Our plan is to find ways to help your business find the best solution for your needs. This information helps us work with you on that solution. A plan can be designed that fits your company with the benefits you want for your employees.
As with all plans, your actual detailed plan benefits would be those described in your certificate of coverage. The above explanation is to help you understand the concept, terminology and benefits of flexible funding.
We look forward to hearing from you and working with you..