Self-funded group health plans, also referred to as administrative services only (ASO) or self-insured plans, have been an option for larger employers for years. But with group health plan costs continuing to rise under the Affordable Care Act (ACA), self-funding is now appealing to smaller employers as well. Why? Because self-funded plans are exempt from many of the Affordable Care Act’s requirements, and because there’s a chance they may save some money.
How self-funded plans work
Self-funded group health plans have some standard costs for employers, just like traditional fully insured group health plans, such as claims processing, administrative fees, and stop-loss premiums (if stop-loss coverage is elected).
The real difference is how claims are paid. Employers choosing to self-fund pay the direct costs of employee claims. This means that if claims are lower than predicted, an employer can save money. Conversely, if claims are higher than expected, it can be costly for an employer.
Because of this, self-funded groups have a financial incentive to improve the health of their employees. This is made easier because, with a self-funded plan, an employer has access to claims reporting data for its group. This data can help select benefits for the group and drive customized wellness and disease-management programs to help contain costs.
Which rules do not apply?
Private employer self-funded group health plans are regulated under the Employee Retirement Income Security Act of 1974 (ERISA), which gave oversight of these employer health plans to the Department of Labor. ERISA preempts state insurance law, which means self-funded plans are subject only to ERISA.
Under ERISA, private employer self-funded group health plans are not subject to state insurance laws. This allows employers to offer the same health benefits to employees in multiple states. In addition, some of the taxes imposed by the ACA on licensed insurance carriers, such as the health insurer fee, don’t apply to self-funded group health plans.
Guaranteed issue requirements apply to insurers only. Employers aren’t required to insure employees. However, if an employer offers coverage to any full-time employee, that employer is already required to offer coverage to all full-time employees. And while employers are not required to offer coverage at all, large employers may pay a tax penalty under the ACA’s shared responsibility rules if they do not offer a group health plan.
Community rating rules apply to insurers only. This frees up employers to set the employee premium equivalent for their self-funded health plans based on actual or projected costs for the health plan rather than having to meet a certain set of requirements. This can save on administrative costs.
Self-funded plans are not required to provide the “essential health benefits” mandated by the ACA. To minimize liability under the shared responsibility rules, however, self-funded plans should meet minimum value standards. Because the essential health benefits don’t apply, employers can craft their self-funded plans to fit their employees, covering things that the employees might use rather than wasting money on benefits that are hardly, if ever, used.
Which rules still apply?
- Children can remain on their parents’ health plan until age 26.
- No one can be denied coverage for a preexisting health condition.
- If essential health benefits are included in the plan, lifetime and annual maximums for those benefits are prohibited.
Self-funding may require some planning
Self-funded group health plans come with extra responsibility. For example, there are tax reporting requirements, which have administrative costs, and some fees related to the ACA, such as a reinsurance fee and a PCORI fee. There are also increased compliance responsibilities, including claims litigation liability, which should be considered.
As the plan sponsor, a business must meet plan documentation requirements, fund bank accounts to pay claims, and more. If you’re working with a third-party administrator, such as WPS Health Insurance, to oversee the benefits, your company can get some help with these details. A third-party administrator can also help you with customer service, claims processing, utilization review, and more.
If you’re considering a self-funded group health plan, talk to your local agent or request a quote from WPS Health Insurance.
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