Small Businesses are putting their businesses at serious risk
In talking with prospective employers one of the most popular topics that arise is self-funding. It being sold like it is the magic solution for employers. The fact is, it’s being sold because it’s an expedient way for carriers and group agents to “stay in the group market.” This means, by offering self funding as the preferred option to “save money” the agent can keep an employer in a “group” policy.
A group policy is much better for a group agent because they can maintain the employer relationship and write greater premium with one policy, the commission is greater too. It is much easier to sell the “popular” fad solution than to dig into the specific details of your plan. There is a large investment of time needed to do the best job comparing all the possible options.
Unfortunately, in the process to “win the sale” important facts about self-funding are left out. There are pitfalls to self funding no matter what your agent, consultant, carrier, TPA or administrator may say. Employers must consider the small print about self-funding before jumping in.
For larger employers, there are benefits to self-funding, but for a group of 25, 40 or 75 employees it is a bad idea. The proposed gain can easily be outweighed by an unexpected $1,000,000 unpaid claim.
Here’s a short list of reasons that should give a small business owner pause before self funding.
1 – Being an Insurance Company Isn’t On Your Bucket List
Being self funded means you move out from under the safety of having an insurance company paying claims. There’s the potential that you may have to pay claims when the TPA/administrator/insurer decides not to pay.
Not to mention, all the new rules and obligations.
2 – You Want to Buy Coverage, Not Be the Coverage
Here is a quote that most people would call the “small print.” You won’t find it in the typical sales material or presentation. You will find it when you’re asked to defend the non-payment in court.
“The participating employer agrees to be solely responsible for compliance with all laws, including the payment of any required benefits that are not covered as illustrated in the Summary Plan Description or the stop loss policy.”
Administrator Actual Policy Language
3 – You Become The Expert In Making This Decision
This carrier is being honest when they say, you should have experts telling you what to expect before you choose self-funding. This quote is a warning found in the sales material.
“While many employers can benefit from a self-funded plan, it may not be the right choice for every business. The biggest question a small group employer has to consider is if the additional risk will jeopardize their business.”
Administrator Advertising Materials
If you self-fund you will need a qualified person to evaluate your risk before making the decision. Your sales agent, consultant, insurer, CFO, HR person are not qualified to make this assessment. Will they pay the claim or will that come from you, the owners pocket?
This is a skill that is working for others every day why not ask for help after all, you hope people hire you for your expertise.
4 – You Didn’t Have Time to Read the Small Print
The Big Print makes promises but the small print takes those promises away. When your self-funded administrator, TPA,insurer decides not to pay a claim, you’re on the hook. You as a business owner become the checkbook.
It’s true, in today’s sophisticated and complicated healthcare world it’s becoming more necessary to independently evaluate your options.
CAN YOU SAY DOUBLE TALK
This is just one example of the big print:
“Your maximum self-funding cost for the plan year is determined up front – and it’s guaranteed not to change, …
And here’s one example of the corresponding small print written into the policy of the carrier who published the “big print” quote above. There are many statements like this and you should know them all, or have someone who does.
- “We issued this coverage in reliance upon the accuracy and completeness of the information provided in the application form and during the enrollment process. If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim, rescind the coverage and/or modify the terms of the coverage or the premium amount.”
Actual policy language, page 1.
5 – You Didn’t Make a Benefit Plan to Tell Employees They Aren’t Covered
It happens, google the topic of “self-funded plans that couldn’t pay claims” and you will find 42 million website hits (graphic below). The point is, there’s not shortage of problems for those who get in over their head.
Do you Still Need Convincing?
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Source: Actual administrator and carrier language from marketing promotions and specimen policy.