Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. Self-insured health plans traditionally have been the realm of large employers. But a combination of the impact of the Patient Protection and Affordable Care Act and a greater appetite among insurance companies to offer stop-loss coverage to smaller employers may tip the scales in favor of self-insurance for some. Here's an overview of the situation.

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2. Although 2014 seems to be approaching fast, many smaller employers
have yet to make important decisions about how they will confront the
new coverage provisions under Patient Protection and Affordable Care
Act (PPACA) which are to take effect next year.
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Thomas Mangan, CEO of United Benefit Advisors, a large partnership of
independent benefit advisory firms, expects a 25 percent uptick in the
number of small employers choosing to self-insure by the end of the year.
The number has been rising over the last couple of years, according to a
recent report from Kaiser Health News.
Self-insurance, of course, puts you in the role of the insurance company,
and gives you considerable flexibility with plan design and the possibility
of saving money -- "in the double digits," Mangan estimates. It also comes
with new burdens and liability.
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3. Self-insured plans are governed by ERISA, and not subject to state-specific
mandated coverage of particular services, as fully insured, state-regulated
plans are.
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» Depending on the state, and assuming you don't want to cover extra
state-mandated benefits, that can generate savings around 5 percent,
and even as much as 15 percent in states with a long menu of expensive
mandates, Mangan says.

4. PPACA Loophole
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» The big "loophole" under PPACA is that self-funded plans are exempt
from the requirement to provide specified "essential health
benefits." Nevertheless, if these self-insured plans do offer any essential
health benefits they cannot place lifetime or annual limits on
those benefits provided under the plan.
There is no guarantee that self-insured plans will always be exempt from
the essential health benefit requirement, warns Barry Newman, an
attorney with The Wagner Law Group, if legislators and government
agencies try to level the playing field.
Also, Newman warns, while self-funded plans are not currently required
to satisfy PPACA's annual deductible and out-of-pocket limits, the
Department of Labor has indicated it intends to bring self-funded plans
under this requirement in the future.
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5. Finally, self-funded plans cannot discriminate in favor of the "highly paid."
Although in theory this requirement now also applies to insured plans, as
a practical matter, for historical reasons, it is not a matter of concern for
those plans, according to Newman.
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Nevertheless, for now, savings could be meaningful for self-insured
employers who want to maintain a lean plan. They are, however, covered by
the law's requirements to provide free wellness and enumerated women's
preventive health services. Also, self-funded plans are subject to the same
minimum ("bronze" level) cost-sharing standard holding employers
responsible for at least 60 percent of the plan's actuarially determined value.
There are two additional PPACA-specific reasons why self-insuring might be
relatively more attractive next year. One is that premiums for fully insured
plans covering fewer than 100 employees will need to be based on
community rating rules. This means fully insured employers with younger and
healthier employees will see their rates go up. The flip side is also true,
however: employers with less healthy demographics may benefit.

6. Premium Tax Impact
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Finally, a large part of the new PPACA-imposed premium tax on health
insurers will be passed on to employers. The tax will be determined by a
formula based on an aggregate revenue goal, but is estimated to be
between two and three percent of plan premiums next year.
Self-insured companies may be affected to a small degree because the
insurers which provide stop-loss coverage and any administrative services
to self-insured plans will also face the same tax.
The impact will be small for self-insured employers, Mangan says,
because stop-loss coverage generally falls in the range of 15 percent of
overall plan cost, and additional services -- such as access to medical
networks and prescription drug cards -- add more to the tab.
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7. Other factors must be kept in mind when considering self-insuring,
beyond PPACA-related savings, of course. For one thing, the insurer of a
fully funded health plan assumes fiduciary responsibility for the
operations of the plan.
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You become the fiduciary when you
self-insure. Outsourcing much of the
plan administration to an insurer or a
third party administrator doesn't get
you off the hook as a fiduciary. In
addition, employers should know
that the sponsor of a self funded plan
will have greater responsibilities, and
potential liabilities, under HIPAA's
privacy and security rules.
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8. Dealing with Claim Spikes
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Another fundamental consideration is whether you have the financial
capacity to accommodate spikes in claims. Even if total claims over a 12-
month period don't exceed projected amounts, if a high proportion of
them come in early in the year, you'll need to have sufficient reserves to
keep up.
Also, while stop-loss coverage limits your ultimate liability for claims,
aggregate stop loss (stop loss for the plan as a whole, as opposed to
specific stop loss which is based on an individual's claims) typically doesn't
kick in until claims add up to as much as 125 percent of projected
amounts, depending on the policy. (It is now becoming more affordable
to buy stop-loss policies that take over at 110 percent, Mangan says.)
An industry rule of thumb, according to Mangan, is that "you'll come out
ahead three out of five years," when you add it all up.
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9. Throughout the whole process of reviewing the self-insurance option,
don't lose sight of the bigger picture of why you are offering health
benefits, and the level of health benefits you will need to maintain to
remain competitive in your labor market. Also, you will want to avoid
facing penalties by having a plan so lean that employees would be better
off opting to buy coverage with tax subsidies through a public health
exchange.
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