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Self-funded plans draw small-firm interest

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In the face of new health reform restrictions, expect more small employers to opt for self-funded health benefits—so concludes a report this week from Indianapolis-based United Benefit Advisors LLC.

UBA, which links a network of employer-benefits agencies across the country, found in 2010 surveys that roughly 12 percent of employers with fewer than 200 workers have self-funded plans, but more are showing interest in them since the passage of the health reform law a year ago.

Among all companies surveyed by UBA last year, 12 percent of employers want to switch to self-funding someday.

“Self-funded plans will become more common and provide more control,” said Jeff Hadden, a partner of Indianapolis-based LHD Benefits, also known as LoCascio Hadden & Dennis LLC, in the UBA report.

A self-funded health benefits plan requires an employer to pay its workers’ medical claims rather than paying an insurance company to handle them. Self-funded means a company bears the risk of really large claims. Therefore, many self-funded employers buy stop-loss insurance that kicks in for large one-time bills or when overall claims reach a high threshold.

Employers like self-funded plans because the costs can be less, but the drawback is costs can be unpredictable.

The new law tries to hold down prices for all firms by requiring insurers to spend at least 80 percent of premiums on health benefits, something called a minimum medical-loss ratio. Also, the new health reform law will no longer allow health insurers selling fully funded coverage to price their policies based on the health status of an employers’ workers. For health plans covering fewer than 100 people, insurers will be able to adjust prices only for age, tobacco use, family versus self-coverage and region.

This so-called “community rating system” will benefit employers with unhealthy workers. However, the new rules likely will raise costs for companies with healthy workers. Also, because community rating sets prices based on a pool of employers in one geographic region, efforts by individual companies to use wellness programs to improve their workers’ health would have minimal effect on the cost of coverage.

“The sickest groups will remain fully funded and rely on community rates and mandated medical-loss ratios,” said Hadden at LHD Benefits. He added, “If groups are self-funded with appropriate levels of protection in place, they have more control over their costs and don’t have to be driven by the community rate.”

Stop-loss insurers, recognizing the growing interest from small firms, recently started offering coverage for employers with as few as 25 workers, Hadden noted.

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  • ASO for small group
    There is some talk in the development of self funded plan for groups as small as 35 lives. The national carriers are working on a ASO type plan where all the stop loss insurance is bundled. We could see spec rates as low as $15,000. The community rating system would force most healthy groups to look at this type of option.
  • Self Funded Plans, Inc.
    The economy seems to have come out from hibernation! More small companies are now able to accept the risk of self funding their health plan. I have markets that will write a stop loss policy on an employer as small as 15 employees! If you are a decision maker on your companies health insurance plan, make sure your broker/agent is at least mentioning Self Funding as an option.

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  1. These liberals are out of control. They want to drive our economy into the ground and double and triple our electric bills. Sierra Club, stay out of Indy!

  2. These activist liberal judges have gotten out of control. Thankfully we have a sensible supreme court that overturns their absurd rulings!

  3. Maybe they shouldn't be throwing money at the IRL or whatever they call it now. Probably should save that money for actual operations.

  4. For you central Indiana folks that don't know what a good pizza is, Aurelio's will take care of that. There are some good pizza places in central Indiana but nothing like this!!!

  5. I am troubled with this whole string of comments as I am not sure anyone pointed out that many of the "high paying" positions have been eliminated identified by asterisks as of fiscal year 2012. That indicates to me that the hospitals are making responsible yet difficult decisions and eliminating heavy paying positions. To make this more problematic, we have created a society of "entitlement" where individuals believe they should receive free services at no cost to them. I have yet to get a house repair done at no cost nor have I taken my car that is out of warranty for repair for free repair expecting the government to pay for it even though it is the second largest investment one makes in their life besides purchasing a home. Yet, we continue to hear verbal and aggressive abuse from the consumer who expects free services and have to reward them as a result of HCAHPS surveys which we have no influence over as it is 3rd party required by CMS. Peel the onion and get to the root of the problem...you will find that society has created the problem and our current political landscape and not the people who were fortunate to lead healthcare in the right direction before becoming distorted. As a side note, I had a friend sit in an ED in Canada for nearly two days prior to being evaluated and then finally...3 months later got a CT of the head. You pay for what you get...

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