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Although 2014 seems to be approaching fast, many smaller employers have yet to make important decisions about how they will confront the new coverage provisions under Patient Protection and Affordable Care Act (PPACA) which are to take effect next year. Thomas Mangan, CEO of United Benefit Advisors, a large partnership of independent benefit advisory firms, expects a 25 percent uptick in the number of small employers choosing to self-insure by the end of the year. The number has been rising over the last couple of years, according to a recent report from Kaiser Health News. Self-insurance, of course, puts you in the role of the insurance company, and gives you considerable flexibility with plan design and the possibility of saving money -- "in the double digits," Mangan estimates. It also comes with new burdens and liability. Self-insured plans are governed by ERISA, and not subject to state-specific mandated coverage of particular services, as fully insured, state-regulated plans are. Depending on the state, and assuming you don't want to cover extra state-mandated benefits, that can generate savings around 5 percent, and even as much as 15 percent in states with a long menu of expensive mandates, Mangan says. PPACA Loophole The big "loophole" under PPACA is that self-funded plans are exempt from the requirement to provide specified "essential health benefits." Nevertheless, if these self-insured plans do offer any essential health benefits they cannot place lifetime or annual limits on those benefits provided under the plan. There is no guarantee that self-insured plans will always be exempt from the essential health benefit requirement, warns Barry Newman, an attorney with The Wagner Law Group, if legislators and government agencies try to level the playing field. Also, Newman warns, while self-funded plans are not currently required to satisfy PPACA's annual deductible and out-of-pocket limits, the Department of Labor has indicated it intends to bring self-funded plans under this requirement in the future. Finally, self-funded plans cannot discriminate in favor of the "highly paid." Although in theory this requirement now also applies to insured plans, as a practical matter, for historical reasons, it is not a matter of concern for those plans, according to Newman. Nevertheless, for now, savings could be meaningful for self-insured employers who want to maintain a lean plan. They are, however, covered by the law's requirements to provide free wellness and enumerated women's preventive health services. Also, self-funded plans are subject to the same minimum ("bronze" level) cost-sharing standard holding employers responsible for at least 60 percent of the plan's actuarially determined value. There are two additional PPACA-specific reasons why self-insuring might be relatively more attractive next year. One is that premiums for fully insured plans covering fewer than 100 employees will need to be based on community rating rules. This means fully insured employers with younger and healthier employees will see their rates go up. The flip side is also true, however: employers with less healthy demographics may benefit. Premium Tax Impact Finally, a large part of the new PPACA-imposed premium tax on health insurers will be passed on to employers. The tax will be determined by a formula based on an aggregate revenue goal, but is estimated to be between two and three percent of plan premiums next year. Self-insured companies may be affected to a small degree because the insurers which provide stop-loss coverage and any administrative services to self-insured plans will also face the same tax. The impact will be small for self-insured employers, Mangan says, because stop-loss coverage generally falls in the range of 15 percent of overall plan cost, and additional services -- such as access to medical networks and prescription drug cards -- add more to the tab. Other factors must be kept in mind when considering self-insuring, beyond PPACA-related savings, of course. For one thing, the insurer of a fully funded health plan assumes fiduciary responsibility for the operations of the plan. You become the fiduciary when you self-insure. Outsourcing much of the plan administration to an insurer or a third party administrator doesn't get you off the hook as a fiduciary. In addition, employers should know that the sponsor of a self funded plan will have greater responsibilities, and potential liabilities, under HIPAA's privacy and security rules. Dealing with Claim Spikes Another fundamental consideration is whether you have the financial capacity to accommodate spikes in claims. Even if total claims over a 12-month period don't exceed projected amounts, if a high proportion of them come in early in the year, you'll need to have sufficient reserves to keep up. Also, while stop-loss coverage limits your ultimate liability for claims, aggregate stop loss (stop loss for the plan as a whole, as opposed to specific stop loss which is based on an individual's claims) typically doesn't kick in until claims add up to as much as 125 percent of projected amounts, depending on the policy. (It is now becoming more affordable to buy stop-loss policies that take over at 110 percent, Mangan says.) An industry rule of thumb, according to Mangan, is that "you'll come out ahead three out of five years," when you add it all up. Throughout the whole process of reviewing the self-insurance option, don't lose sight of the bigger picture of why you are offering health benefits, and the level of health benefits you will need to maintain to remain competitive in your labor market. Also, you will want to avoid facing penalties by having a plan so lean that employees would be better off opting to buy coverage with tax subsidies through a public health exchange. At HR&P we know what drives your company. We have built a reputation on providing exceptional customer service and administrative solutions that help companies improve productivity and profitability. Please give us a call at 281.880.6525 or visit us HERE and we will be happy to talk to you. About HR&P:
Since opening our doors in 2000, HR&P has offered the highest quality human resource outsourcing and payroll services to a diverse pool of clients. By processing your payroll, managing your benefits and overseeing your human resource issues, HR&P makes your workforce flexible and able to meet your changing business demands. Our ongoing goal is to continue to develop specific solutions for each client that suit their particular needs. Contact HR&P:
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Self Insurance, PPACA, Human Resource Outsourcing, Professional Employer Organization, Payroll Services, Payroll Outsourcing, Human Resource Solutions,
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