Some business owners have watched their company’s health insurance premiums rise, even as their number of claims has remained relatively stagnant.
And some of those business owners have toyed with the idea of leaving traditional insurance coverage and replacing it with a self-funded plan.
“With self-funding, you are managing risk,” says Mary Ann Tournoux, vice president of sales and marketing for HomeTown Health Network. “These companies look and see that for the last number of years, they’ve paid this much and haven’t used it all.”
But before jumping into self-funding, you need to ask a lot of questions, including, How much risk can we, as a company, bear?
Tournoux cautions that even if the math shows your company spends more in premiums than it gets in reimbursement, every business has good and bad years, and a bad year could be devastating to your company.
“Just one heart-lung transplant can eat up all the reserves you have on hand,” she cautions. “If you do pull the short straw, you could have $500,000 in one claim alone.”
One way to protect against coming up short is to partially self-fund, and buy a stop-loss policy, basically an insurance plan with a high deductible.
“It’s like buying a plan with a huge deductible,” says Tournoux. “The company decides it can cover about $500,000 or a million in claims, and the plan covers beyond that point.”
But a company’s cash flow is only part of the issue. Business also must consider the amount of time and paperwork that goes into self-funding.
“Large companies that are totally self-funded, they have a department in the company that processes the claims; they do it all themselves,” says Tournoux.
That means knowing the laws. Self-funded plans are covered by ERISA laws, HIPAA regulations and other fiduciary responsibilities.
“The HIPAA privacy laws are extremely punitive,” says Tournoux. “And the regulations state that there needs to be a firewall between the financial and administrator … and there are tons of policies and procedures.”
Another concern is that a company that self-funds, then wants to go back to traditional coverage — especially after a big claim — may find it difficult to do so.
“In some cases, no one wants to take them back,” says Tournoux. “If you try (self-funding) and find it’s not worth it, it can be a lot more complicated to return to traditional coverage.”
The company may run into “lasering,” in which the insurance company looks at what one or a few high-claim individuals have cost the firm, then offers to cover everyone but those people. For businesses required to offer health care benefits, this can be a problem.
“If you are over 50 employees and you are not protected by HIPAA laws, you run the risk that no insurance company will write you,” says Tournoux.
There are benefits with self-funding, and Tournoux suggests companies that decide to go that route get a full-time administrator or a third-party administrator to process claims. And it’s a good idea to lease a network; for a monthly fee, the network will provide a medical management program.
“There is really no right or wrong answer,” says Tournoux “It’s a game and an attempt to get a better deal.” How to reach: HomeTown Health Network, www.homehealthnet.com or (330) 837-6869
The DOL, IRS and COBRA
The New Year is bringing with it a whole slew of health care changes. So if you want to stay on the good side of the DOL and the IRS, take notice of new COBRA and tax law.
The Department of Labor recently issued proposed regulations requiring employers to revise COBRA notice by Jan. 1, 2004.
The proposed regulations:
* Employers need to provide general notice of COBRA rights to new employees and qualifying family members 90 days after coverage begins.
* Employers must provide notice of why an individual is not entitled to elect continuation coverage and notice when coverage is terminated before the full period required by COBRA.
* An employer is no longer in good faith compliance with federal regulations by using the notice contained in the Department of Labor’s Technical Release 86-2.
To view the proposed regulations and see model notices go to www.dol.gov/ebsa/newsroom/fs052803.html.
Also beginning Jan. 1, 2004, the amount deferred into a cafeteria plan will no longer be subject to city tax.
* This includes medical expenses and dependent care expenses if covered in the cafeteria plan.
* In the past, cities had the option of including these deferrals in the city taxable wage base or not.
* In most cases, the city wages should match the Medicare wages. Source: Bober, Markey, Fedorovich & Co.
