Self insurance plans are based upon the idea that when a company has a large risk pool they are able to self insure, at least partially anyways.
Generally, these plans have a specific deductible and an aggregate deductible. The risk to the employer is actually very specific.
In practice, this means that the employer assumes all claims under that specific deductible while any claims over the specific deductible are picked up by the reinsurer. In fact, these plans are very much like catastrophic plans the difference being of course that instead of the insured paying for everyday claims they are paid by the employer.
A good example and a common amount for these self insurance plans include a $10,000 deductible, with any claims above this deductible being paid by the secondary insurer.
Deductible and Self Insurance Plans
There is also an aggregate deductible, which is the total amount of expected or maximum claim total in any given year that a company is liable under these self insurance health plans.
To continue our example, a company with 100 employees might make their aggregate deductible $400,000 in a given year. This means, of course, that all health claims are paid in total up till the $400,000 threshold.
Administration Costs and Self Health Insurance
Another factor in these plans is the administration costs. By self insuring and handling the administration the companies can really start to see savings. This is because administration costs can be cut in half when handled in house.
The administration costs of most health insurance plans range from 15-18% of the overall premium. Some companies even hire a Third Party Administrator to handle this work and secure the stop-loss coverage.
These third party companies will even shop for re-insurers on behalf of the company, or the broker will shop the secondary insurance policy and then recommend a TPA (third party administrator).
- Administration duties consist of
- Claims processing
- Arranging network alliances for discount purposes
- Repricing claims
- Reviewing claims
- Handling referrals and pre-certification of medical procedure
- Handling the pharmacy benefits
- Disease management
- Preparing benefit descriptions and plan documents
- Handling employee benefit and employee questions
- Mailing premium and claims checks to providers
- Tax duties
These Third Party Administrators can be compensated per employee or per claim.
Securing a reinsurer can also be a difficult. At least two years of claim experience is generally required. There are also a ton of requirements that can make reinsurering a monumental task. Underwriting is very complex.
As these plans fall under ERISA, they have had many problems in the past due to false promises and underfunding. Still these plans can be a god send for employers with over 100 employees.