This presentation is designed to provide the information needed to understand self-funding, assist you in explaining the solution to clients and then determine whether it is right for their company by comparing and contrasting it to a fully insured solution.

1. SELF-FUNDING 101

2. EXPERTISE
The Alliance moves health care forward by
controlling costs, improving quality, and
engaging individuals in their health.
We are an employer-owned, not-for-profit
cooperative:
Founded in 1990
200 members; 90,000 individuals
Wisconsin, Illinois and Iowa

3. OBJECTIVES
To understand key elements of the
self-funding model
To be prepared to objectively
compare self-funding to other
healthcare options
To examine the need for a longterm strategy for employee health
benefits

4. DEFINITIONS
Self-Insured
Fully Insured
The employer contracts with a
health insurance carrier, which
then assumes responsibility
for the risk of health care for
enrollees. The employer
ERISA
purchases the insurance.
The employer accepts
responsibility for the risk of
health care for enrollees. The
employer self-funds the plan
rather than paying a premium.
ERISA
“The Employee Retirement Income
Security Act of 1974 (ERISA) is a
federal law that sets minimum
standards for most voluntarily
established pension and health plans
in private industry to provide
protection for individuals in these
plans.”

5. DEFINITIONS, cont.
Plan Sponsor
The entity that establishes and
sponsors the plan and has
fiduciary responsibility for the
health plan.
Plan Participant
An employee or dependent who
is covered by the health plan.
Stop Loss Insurance
Purchased from an insurance carrier by employer to cap
catastrophic claims risk. Reimburses the employer for claims
that exceed a predetermined level and limits the costs on an
individual case basis (specific coverage). The limit on group
claims is known as aggregate coverage.

6. HEALTH BENEFITS
TRENDS

7. NATIONAL TRENDS
Health Care Cost Increases

8. NATIONAL TRENDS
Health Care Costs Continue to Rise Rapidly
22 Years Ago
2013
10 years from now
Annual Cost, single
$1,480
$5,884
Expected to double
Annual Cost, family
$4,040
$16,351
Expected to
quadruple
Average annual cost
increase
15%
9%
Expected to outpace
inflation
Source: Kaiser Family Foundation and Health Research Educational
Trust Employer Health Benefits 2013Annual Survey

9. NATIONAL TRENDS
Today a majority of large employers
self-fund
57% of all covered workers in the U.S.
were under some form of self-funded medical
plan arrangement
Percentage of self-funded employers
increases with employer size
82% of large employers are self-funded.
*Large employers are defined are having more than 50 employees.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2013

10. NATIONAL TRENDS
Impact of Health Reform on Self-Funded Plans
Reformers may object to ERISA exemptions because they
fear it hinders reform on the state level.
Legislators may take aim at tax breaks or propose a tax on
self-funded plans.
Self-funding proponents counter by noting that self-funding
enables companies to make changes that improve employee
health while having a positive influence on the value of
health care.
Massachusetts is the only state to have enacted health
reform similar to the ACA, and they have seen an increase
in the percentage of workers in self-insured plans among all
firm-size cohorts.

11. REACTION TO
NATIONAL TRENDS
What can employers do to control rising costs
and improve cash flow?
> Cost shifting
> Reduce benefits
What employers are considering while looking
into self-funding?
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Nature of their business
Financial experience and tolerance for risk
Budget
Bargaining agreements
Geographic location
Size and demographics of employee population
Plan design

12. HOW IT WORKS:
Weighing the Risk
SELF-FUNDED
FULLY INSURED
Employer assumes all risk up to stop
Low to no risk
loss attachment point
-Potential maximum is known
-Actual maximum depends on
claims
Pays for what is used
-Varies month to month; year to
year
Earn interest on account
Employers know in advance the
amount that must be paid out over a
specific time period

13. HOW IT WORKS:
The Risk Equation
SELF-FUNDED
FULLY INSURED
Employer assumes greater risk in
exchange for greater control and
potential cost savings.
Assuming more risk=Greater control
Carrier assumes risk, but control is
lessened and costs
may be higher

14. HOW IT WORKS:
Funding the Plan
SELF-FUNDED
FULLY INSURED
Employer assumes the risk, with stop-loss
insurance providing financial protection against Coverage is purchased from an insurance
catastrophic claims
carrier
Can pay medical claims as incurred like other
Premiums determined annually based on:
corporate expenses, or can deposit expected or
employee group size
maximum costs into an account each month
employer's claims experience
carrier's desired profit margin
After claims are paid, employer keeps year-end
difference, including interest income

15. HOW IT WORKS:
Identifying the Players
Other Possibilities:
•Pharmaceutical Benefit Manager (PBM) •HSA Administration
•Case Management •Disease Management •Wellness Program •Care Coordination

16. HOW IT WORKS:
Plan Design
Employer
Broker
TPA

17. HOW IT WORKS:
Developing the Plan Design
Customize benefits
Assert control over coverage & exclusions
Tie plan to larger goals
> For example, a wellness-based plan may pay higher levels
for preventive care if employees participate in a HRA, or
> Reduce the amount of employee contribution for those who
participate in HRA.
Remain focused on long-term strategy

18. HOW IT WORKS:
Plan Design Is Anchored By
Summary Plan Description
ERISA: Must be clear and complete
source of information for employees
> Eligibility provisions
> Benefits available
> Coverage termination or denial
Serves as contract between employer
and employee
Used by claim administrator & stop-loss
carrier

19. HOW IT WORKS:
The Role of the TPA
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Plan Design
Bid for stop-loss coverage
May set up bank account for employer
Handles enrollment, determining & maintaining
eligibility
Adjudicating & paying claims based on the SBC
Customer service
Works with the chosen network(s)
Issue claims payments
Provides utilization reports
Consolidated billing
Case management
Preparing reports
May provide additional services

20. TYPE OF BENEFITS
That are Self-funded
Medical
Prescription drugs
Short-term disability
Dental
Vision

21. DISADVANTAGES
& ADVANTAGES

22. DISADVANTAGES
Variables in costs and claims
Legal and fiduciary responsibility
Administrative requirements
May be difficult to leave the plan

23. ADVANTAGES:
Risk management effectiveness
Employers select the amount of risk
they wish to retain
Flexibility is built into the system to
adapt to employer needs
Insurance company has preset limits to
guide risk levels
Risk Margin/Profit Margin is eliminated
in self-funded plans to create immediate
savings

24. ADVANTAGES:
Cost Savings
No state premium tax on plan
Carrier’s profit margin removed
Lower administration costs
Released from compliance with costly
state mandates (ERISA rules your plan)
Cash flow may be enhanced (no need to
pre-pay for coverage)
Retain interest on unused funds

25. ADVANTAGES:
Cost and Utilization Control
Employer controls plan design
Employer can choose cost and
utilization control programs
> Disease management programs and
pharmacy benefit program
Employer can obtain network
savings
> Cooperatives, PPOs

26. ADVANTAGES:
Plan Design
Employer control of plan design
makes it possible to focus on longterm strategies:
> Returning money to the bottom line
> Creating a better workplace culture
> Creating a more productive
workforce
> Reaction to business conditions

27. ADVANTAGES:
Focus on Value
Access to data that lets the employer
determine the value of health benefits
> Value-based purchasing may be an option
Access to data that helps design benefits
that shape enrollees’ health practices
> Opportunity to engage employees in their health

28. ADVANTAGES:
Morale and Productivity
Improved morale
> Employer creates culture of investing in
employee’s health and wellness
> Employer not forced to reduce plan benefits to
keep costs down

29. COMPARISON:
Plan Design
SELF-FUNDED
FULLY-INSURED
Employer crafts plan design, co-pay,
deductible, etc.
"Cookie cutter" plans offered to employers
Plan must meet ERISA standards
Plan must include state mandates
Employer chooses provider network
Plan design and network determined by
insurer
Full access to claims and pharmaceutical data Limited access to claims data

30. COMPARISON:
Employer Responsibilities
SELF-FUNDED
FULLY-INSURED
Active HR role; often internal benefit
administrator
Minimal administrative role
Craft plan design, pick provider network
Plan design, provider network come from
insurer
Pay claims via TPA
Pay premiums
Purchase stop-loss coverage
Plan and premiums revisited annually or
when term ends
Active review of claims activity

31. COMPARISON:
Cost Components
SELF-FUNDED
FULLY-INSURED
Fixed Costs
Fixed Premium times number of employees
(Administrative Fees, & Stop-Loss Premiums)
Variable cost of medical claims
Don't pay in advance or overpay
Retain interest income
When costs are lower insurance company
makes more profit

32. EXAMPLE
Self-Funded and Fully Insured Example -- ACME Co.
SELF-FUNDED
FULLY-INSURED
Worst case scenario for year is $1.6 million
Premium of $1.5 million
Acme pays $20K/month fixed premium
Claims & administrative expense of $1 million
Claims reserve held is $1.36 million
Fully insured carrier keeps $500,000
Acme retains $360K of reserves
Acme saves $260,000
Source: Self Funding Employer Healthcare & Workers Comp Conference,
www.selffundingconference.com

33. WEIGHING THE WORTH
of Self-Funding Your Company

34. DECISION-MAKING
FACTORS
Top level commitment to actively
managing health benefits, including cost
Risk tolerance and cash flow analysis
Demographics of the employee
populations
Interest in exploring health strategies
and initiatives that help restrain cost
Focus on health benefit value

35. DECISION-MAKING
FACTORS
Short-term Cost savings
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Savings in state premium taxes
Savings from state mandates
Savings from short-term discounts
Savings from risk margin/profit margin
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Savings from administrative costs
3.5 to 5% over HMOs, depending on size
of the group

36. DECISION-MAKING
FACTORS
Willingness to make a long-term commitment to
enhance return
>
Maximizing Return On Investment (ROI), given
the variables that influence costs and claims,
relies on long-term implementation of health
plan strategies
Explore self-funding with dental plan
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Less complicated; lower risk
Provides a good “feel’ for self-funding issues
With annual maximums set, it is typically financially
advantageous for all group plans to self-fund the
dental plan

37. EXAMINE
Your Client’s Health Benefit Approach
Step one: Determine who is involved in the
decision-making process
Step two: Take a strategic, business
management approach to key issues
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View health care as a business unit where
profits and loss can be managed, rather than
merely tolerated
Consider impact on operations through
productivity, and ‘presenteeism’

38. EXAMINE
Your Client’s Health Benefit Approach
Step three: Review both the type of
information that is gathered and how it is
shared
Step four: Weigh risk tolerance and evaluate
cash flow
Step five: Decide what factors and criteria
will drive the process

39. COMPARE YOUR CLIENTS
To The ‘Top Performers’

40. ANALYZING TOP
PERFORMERS
Towers Perrin found a $1,200 per
employee annual cost difference
between companies that are “high” and
“low” performers in 2009
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$10,104 per employee for “low” group
$8,904 per employee for “high” group

41. TOP PERFORMERS
High-performers…
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“…Focus on supporting and improving employee
health”
“…Commit to rigorous – and continuous –
management of health plans and delivery
processes”
“…”Build employee health into business
strategies and organization cultures”
Source: Towers Perrin 2009 Health Care Cost Survey

42. TOP PERFORMERS
Among high performers:
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78% say their company plays a major role in
identifying and managing employee health
risks and conditions
76% say they’re committed to building a
“culture of health”
87% view employee health as a “critical
component of superior business performance”
Source: Towers Perrin 2009 Health Care Cost Survey

43. TACTICS
of Top Performers
Clearly articulate strategies
Engage leaders
Understand employee populations
Engage employees
Optimize investments
Support employee health
Measure for success
Source: Towers Perrin 2009 Health Care Cost Survey

44. QUESTIONS
To Consider
What resources are currently available
to develop health care strategies and
implement health care initiatives?
How does the employer measure the
performance and the value of health
care benefit spending?
What metrics are available to track,
monitor, and manage health care
“spend?”

45. SUMMARY
Self-funding is…
…A viable option for employers who
understand the administrative demands, the
risk, and the potential rewards.
…An approach that may not be right for
employers unprepared or unwilling to pursue
this challenge.
…An opportunity to take a strategic approach
to health benefits.

46. Thank you for viewing this presentation
created by The Alliance.
If you would like to Learn More about
The Alliance please visit our website at
www.the-alliance.org
Call us at 800.223.4136 or email us at
thealliance@the-alliance.org