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 independent evaluation. www.BenStaff.com, www.DonWatza.com

Small Businesses are putting their businesses at serious risk

In talking with prospective employers seeking our “Decoder”, one of the most popular topics that arises is self funding. It is 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 to healthcare 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. Normal commissions can not by themselves support this deeper analysis. As a result, for a sales agent, it’s much easier to sell self funding.

Unfortunately, in the process to “win” the sale important information about self funding is left out. There are pitfalls to self funding no matter what your agent, consultant, carrier, TPA or administrator say. Employers must consider the small print about self funding before jumping into this type of plan.

For larger employers, there are benefits to self funding, but self funding for a group of 25, 40 or 75 is a bad idea because the proposed gains 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 quote is a warning found in the sales material of a TPA, it’s terrific to see but rare to find sales material like this, with the truth, in sales promotional propaganda. At least, this carrier is being honest when they say, you should have experts telling you what to expect before you choose self funding.

“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 go the route of self funded, you will need someone qualified to evaluate your risk before making the decision. Your sales agent, consultant, insurer, CFO, HR person are not qualified to make this assessment for you. Of course, this is a skill we have and put to work everyday, the BenStaff team can bring our independent evaluation skills to your team to balance all the noise and help you make an informed decision.

This service is built into every Decoder where an employer is giving this option consideration.

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 employees and courts will rely upon.

Hard to believe, why would a sales person you “trust” let this happen. 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 more statements like this in every self funded agreement or stop loss policy.

  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. See the graphic of the google search done on that topic. That’s a few more sites than can be covered in this short note. The point is, there’s plenty of reading available on the many problems with self funding.

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? I’ll Review Your Options for Free.

If you are still questioning it’s viability for your organization, and you’ve read this entire post, send any quote you have received and the comparisons you have from agents consultants insurers or your internal staff and I’ll give you my two cents for free.

This offer is available to owners only. Send them to my email without PHI, djwatza@BenStaff.com.

Have a great weekend.

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

A Real Life Story of Accepting ACA Changes for a Small Business; Part II

Part II – a Small Business Looking to Do Better

The story starts with a business who engaged us for our Decoder because they asked the simple question, “we know it’s different than it use to be, and we perceive we could do better but we don’t know how to make the right decision.” In the first post, a couple days ago, you learned about the background a little bit. Feel free to review that post below.

Today, we’ll begin to cover details about who is being covered and who is not. It’s very common to have employers who cover individuals that should not be covered. Would you be surprised to know that employers have been known to cover deceased employees, or family members? When we visit with employers we never expect problems but we’re never surprised to find them either.

Job One, Research

Our first job is to research the details about all those covered and all those who are, or were, working for a company. We ask for lists that would show us this information. For instance, tax statements that provide lists of employees and payroll reports that show hours worked plus HR rosters of employees and former employees and other data. The research starts almost immediately and it usually entails asking questions about documentation that’s available that an insurance company would ask to prove the status of an employee or dependent. Identifying problems can be as easy as doing this research.

Our research immediately draws our attention to questions about a former board president who is still covered. In asking questions, it’s obvious there is no current relationship with the former executive. They had been involved and were made promises by the company. As we discuss this with current ownership, no one wants to address the issue with the board or the former executive. We helped solve the problem by including a proper commentary about the liability to both parties for covering someone who should not be covered.

But the former executive had an agreement?

Insurance companies can audit large claims any time, that’s in the small print. If they audit a claim on a former executive, like in our story, and they discover this person is covered it would be bad for both the employer and former employee. Coverage for groups means employees of the group must be covered and individuals who are not employees can not be covered. This is why it’s called group coverage.

So what actually would happen?

If an audit were to occur by the insurance company they would deny the claim of the former employee stating they’re not an employee of the company and not eligible for “group” coverage.  This is bad because the former employee and covered individual could use promises by the government to impose upon the employer the need to pay the claim. To keep the story simple, I’ve eliminated all the details and possibilities for how this could happen. The point is, there’s a chance the employer would be stuck paying the claims of the employee without insurance coverage. This is bad for everyone.

When we arrived the former employee had been on the plan more than 10 years. Why this had been left to linger is anyone’s guess.

What was the outcome?

The employer and former employee understood the risk to both employer and former employee. We introduced an agent who could help with individual coverage. We directed them to seek individual coverage immediately. This was completed within a week. As a note about how this worked, ACA makes transition from group to individual possible because it eliminated pre-existing conditions and medical underwriting. In the old days, these two rules made doing what we did much more difficult.

This small adjustment to the rules gave us the understanding to help the employer. Because the Decoder puts all of these facts in writing, it made it much easier for the employer to make the change with confidence. They just had to see it in writing and be able to show the former employee as well. This is the purpose of the Decoder.

If you enjoyed the story, or learned something from it, please let me know in the comment below. Do you have your own insurance story?

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.

 

Sins of omission will occur because of so much change

There has never been more change in a shorter period of time than now. Gain added certainty at a time when things couldn’t be more uncertain.

There has never been more change in a shorter period of time than now. Gain added certainty at a time when things couldn’t be more uncertain.

There have been more than 25 major changes to ACA with more to follow. No one can know the entirety of this law and its’ regulations, don’t make decisions in this environment the way you made them in the past. Agents, brokers, consultants can recommend our services to avoid oversights, so many alternatives in every decision.

You are covering more material and making bigger decisions than ever before, what doesn’t get discussed in the planning meetings can be more important than what does get discussed.

Whether you’re an agent, broker or consultant looking for an added resource or you’re a plan fiduciary, trustee, HR executive, finance executive or owner getting a second opinion will save you much more than you spend.

Our team is standing by to help, pick-up the phone and ask for a 2nd opinion.

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Due diligence

Due diligence does not include shopping your agent, broker, or consultant. That’s not a fruitful exercise, even they will say that’s true.

If you overlooked something in making changes, when would you know?

Do you, or your team, have enough experience to squeeze out the best renewal, and costs?

Is there one loose end, or lingering question, that needs attention from a professional and team with more than 200 years experience?

For many employers, the Decoder is the easiest most cost effective way of learning about the law, and how it financially impacts their business.

Self funding down to 35 lives

In order to give more options to employers self funding has become popular. The question to ask is, do you want to be an insurance company? That’s what you do when you self fund.

Only a qualified expert, not a sales agent, should determine if you should self fund healthcare. This is a quote from a carrier promoting self funding down to 35 lives.

“also reduced the size of the groups for our Self/Shared Funding products down to 35 enrolled.  We made these changes in order to give you alternatives to your clients who are not able to keep their current plans.  I want to work with you and assist you as best I can to transition these groups to {his insurance company} and make it as easy and seamless as possible.”

Self funding is an awful idea for small employers, do you really want the liability of being an insurance company? Know before you go by calling in our team to evaluate all your options. The Decoder will help you see the downside, or upside, of self funding.

Self funding for many employers is an awful idea

Self funding turns your business into an insurance company. Before making this move you must prepare an analysis without influence from the sales process. Beware of anyone who says you will save money. Call us, put our independence to work.

Self funding has become a popular recommendation.

Self funding is being recommended for groups down to 25 employees – don’t go out of business because you didn’t get a second opinion first.

Self funding is about risk, your company, or client, acts as the insurance company. Know before you recommend or choose self funding if your plan is predisposed to known risks. Risk factors used to predict rates by actuaries and underwriters can be used by our team to predict the suitability for self funding, consider these risk factors before making this recommendation to your client or in the case of an HR or finance executive, to your boss.

Did you know, according to Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2013, the difference between self funding and fully insured is less than 1%?

Our team of underwriters and actuaries were all former insurance insiders and made a living making money for insurance companies, they know group risk and fee dynamics and will provide valuable insight to you.

A second opinion is never a bad idea, you can’t go wrong recommending a trusted second opinion. Everyone involved will sleep better.

BCBSM, like many vendors are offering self funded plans to small employers. The question is, do you want to be an insurance company?
BCBSM Self funded for 25-49 size groups Reform October 2013

Before you decide, call.