5 Reasons to Avoid Self Funding Your Health Plan

Bring balance to your decision making with an independent evaluation.
Bring balance to your decision making with an independent evaluation. www.DonWatza.com

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

"If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim."
“If a material or fraudulent omission or misstatement is made in the application form, We have the right to deny any claim.”

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.

  1. “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.

Google search on self funded plans that couldn't pay claims.
Google search on self funded plans that couldn’t pay claims.

 

Do you Still Need Convincing?

Show me the options in front of you and I’ll show you the trouble.

Send any quote you have received and the comparisons I’ll give you my two cents for free.

This offer is available to owners only. Send them to my email without PHI, [email protected]

Source: Actual administrator and carrier language from marketing promotions and specimen policy.

All insurance is not Created Equal.

A Health Policy Buyers Dilemma

If you’ve had an insurance policy, and we all do, you may not have ever had a claim. The serious claim that is often large, like ten’s of thousands of dollars large is something many people never experience. This causes a purchase dilemma for most people. They must choose a policy without knowing if, at claim time, it will pay as hoped. They may not be entirely sure what to expect even after the sale. It’s popular for a buyer to accept a recommendation from a sales agent because they have to trust that person to match their needs.

Question One

Here’s the rub, many agents are wonderful, terrific people who want to take good care of their customer. There are some, as in any industry, who are going to recommend what’s in their best interest over their clients interest. Unfortunately, it isn’t quite so black and white. In our work with clients and the Decoder we frequently find opportunities for customers and make adjustments to the original recommendations. We’re making a living on finding these opportunities. We can’t say exactly why it is this way but it’s clear there are always opportunities to do better. In case you’re curious, these adjustments along the way pay for the Decoder within a month or two for most groups.

Question Two

There is a second question to be asked. If you’re not worried about your agent’s recommendations and are confident in them, the question is determining their level of confidence in understanding where the opportunities exist for your business. Healthcare is changing daily, we call it “shifting sands,” the speed of change literally keeps me up at night and this is what we do.

Chances are, what your agent knows, comes almost exclusively from insurance carriers and vendors. If you look objectively, you have to say that makes complete sense. After all, selling insurance to business is what they do for their lively hood. You shouldn’t expect something different. Plus, the speed of change makes sorting out all the carrier and vendor and marketplace options really difficult. Is your agent really up on all the options that might fit you, and can they explain those options in a coherent financial manner your CPA would understand?

Assess Two Qualities About Your Agent

I’m probably stating the obvious but it’s important to know where your allegiance lies. In the first case, the agent who you can trust must be screened by you. It’s very likely, you have confidence in your ability to screen out the better agents. You will have confidence then in choosing or keeping your agent.

Let’s assume in the first case that you’ve used a good process to hire an agent. What about the second case, where you are less prepared to assess how up to speed agent is with ACA, reform, plan regulations, policies and myriad of new options? Fact is, it’s highly unlikely that your abilities in this second part are as adequate.

Sales Process Does Not Work in a Buyers Favor

Insurance has the reputation it has because it’s earned it, and because what insurance provides almost seems like selling air. It is complicated and the sales process does not work in a buyers favor. What is common is that most people don’t experience serious claims that test their trust in a policy and agent, and as a result learn too late that they have a problem.

Insurance is complicated and healthcare is among the most complicated. You should almost expect problems if you’re not introducing an outsiders opinion about the decision you’re making for your policy. I’ve built BenStaff to do just that for you. I had to separate myself from the traditions of insurance and stepped out intentionally to offer an alternative. To protect and work with owners to solve the equation for the optimum outcome has been a real struggle and also opportunity. I have no part in traditional insurance and as a result can give you the benefit of insider information without making a living at selling you a product. I work with agents all the time and am happy to work with a customer’s agent. BenStaff does not participate in commissions, fees or overrides or other bonus’ traditionally part of the sales process.

Many businesses feel forced to reduce the decision to who they trust. While this can be good, it exposes your small and large business to the risk that who they choose to trust may not be the right person or not sufficiently knowledgable to tackle the new day.

Alcoa shifts retirees to private health insurance exchanges | TribLIVE

Private Exchanges cost more money than traditional group insurance. But, they can still be the right answer for groups looking to expand and simplify at the same time.

“Typically, private exchanges are set up by a consulting company or an insurance carrier and offer a broad range of health plans. Employers contribute a set amount that may cover most or all of the cost of a basic plan. It’s up to the worker or retiree to pay for a higher level of coverage.”

The biggest concern for employers is the change in who delivers these complicated new products. For many employers who have National Consulting firms providing information to employers, like those mentioned in this article, it’s self-serving on the part of those organization to also be the pedalers of their own product.

In this article, Towers and Mercer, two of the largest consulting firms are also the creators and sellers of their own private exchanges. It’s a bad idea for the pedalar of the product to also be the advisor. While most anyone would say that’s obvious, it is important to remind individuals responsible for company purchases to get an independent third party to confirm a decision, or help in the evaluation process.

BenStaff is in the business of providing valuation advice to large and small employers. A second opinion will help many employers or unions from making a poor decision.

via Alcoa shifts retirees to private health insurance exchanges | TribLIVE.

A list of Employer Healthcare Options

The list of options available to a Michigan employer or union have increased dramatically. Healthcare reform has ushered in many new options. Many of the options are combinations of old fashion options. Employers do not have more insurance companies to pick from for employees but there are many new combinations of plans. One of the most common is the self-funded plans for employers with as few as 25 employees have become quite popular. We’ll explain this in a future blog but we’ve commented before about the awful idea self funding can be for the wrong employer.

The other very common option is the Private Exchange. As you can see below there are many new private exchanges that offer defined contribution purchasing to employees and fixed cost to employers. In our analysis time and again employers should avoid considering these as cost savings, but rather cost shifting to employees. For some employers these can be a very good offering.

Our Obamacare Employer ACA Decoder offers commentary on how Private Exchanges or old fashion plans or Public Exchange or self funding might best fit, or harm an employer. We work with your agent to define the outcome financially.

Renewal – Market Options Available

Screen Shot 2014-09-11 at 9.18.43 AM

Do nothing
CAM Administrative Services Self-funded program
BCBSM Glidepath – private exchange
iSelect – private exchange
Dropping coverage for all employees and going to the public exchange
Dropping coverage for some employees
BCBSM group plan*
Cambrideges’ Private Exchange
HAP group plan*
Alliance Life (HAP) group plan*
CIGNA group plan*
HAP self-funded plan
Priority Health group plan*
BCBSM self-funded plan
Optimed Self-funded plan
Healthplus group plan*
AON/Hewitt private Exchange
Towers Watson Private Exchange
Mercer Private Exchange
ArrayHealth Private Exchange
Michigan Chamber Private Exchange
– – – and many more options.

A particular caution to buyers is to be aware that consultants are offering their own exchanges and at the same time providing their expertise in recommending a plan. No surprise for many employers, they are buying both the service and advice from the same people. This would not stand up to any test of independence.

The reason BenStaff exists is to offer our independence in supporting decisions, free of any salesmanship.

IRS YouTube Videos Focus on Healthcare Reform, Tax Form Changes

The name you might use to describe what individuals are getting by going to the healthcare.gov marketplace has many different names. The tax credit, the subsidy, the pretax credit, the government hand-out, advance payments of the premium tax creditand other names.

Screen Shot 2014-09-10 at 9.42.04 AM

Employers and advisors should take notice that the IRS is the final decision maker about how much someone gets by way of the “final” tax credit. If you’ve advised someone to take a tax credit, if someone has premiums that are being paid by the government this article and youtube video’s are for you.

New IRS YouTube Videos Focus on Healthcare Reform, Tax Form Changes.

“For most people, filing their returns in the spring of 2015 is going to be fairly simple – with regard to this issue, and that is they’ll simply check a box indicating that they have qualifying insurance or they’ll indicate that they’re eligible for an exemption. Otherwise, they’ll calculate their shared responsibility payment and add it to their tax return,”

IRS Commissioner John Koskinen

Your customer who loses some or all of their premium payment from the government will find out when they owe taxes 4/15, or audit someday afterward.