The Affordable Care Act (ACA) and the continued high costs of group health insurance have led to “alternatives” to traditional fully insured small group health plans. Let’s examine the pros and cons of each approach available in today’s market.
Level funding uses a self-funding contract where the employer pays a fully insured premium equivalent. The employer’s liability is limited to this fully insured equivalent, however, they can receive a refund if the plan runs well.
- Looks and acts like fully insured as offered by carriers.
- Employers can share in surplus after good claim years.
- No terminal liability when offered by traditional carriers.
- Priced very similar to fully insured plans so savings potential is limited.
- Renewals tend to fluctuate a bit more than fully insured plans.
- Beware of “level funding” offered by third-party administrators. It is really self-funding.
Health Reimbursement Arrangement (HRA)
An HRA is an employer-funded plan that reimburses employees for medical expenses.
- Allows employers to maintain a higher benefit level for their employees by taking some risk.
- Generally simple to administer and establish; some carriers have built in administration.
- Good for very small groups.
- Carriers have adjusted their pricing on high deductible plans which has diluted the risk/reward equation a bit.
- Adds a layer of complexity and costs to plan administration and often introduces a third party.
- Not appropriate for administration of prescription drugs. Rx claims should always be run through the underlying carrier due to high costs and the point of sale nature of these claims.
Self-funding offers the employer the opportunity to “pay as you go” for medical claims. The employer pays for fixed costs each month (administration and stop loss protection), but only pays for claims as they are incurred.
- Allows for (and requires) greater involvement from the plan sponsor in the administration of the health plan—though this may also be a con.
- Maximum potential for savings and adoption of creative cost containment strategies.
- Flexibility to change stop loss carriers without disruption to employees.
- Since carriers do not offer self-funding for small groups, access to top-tier provider networks can be a challenge.
- Risky for groups under 100 lives, very risky for groups under 50 lives, and not appropriate for groups under 20 lives.
- Stop loss pricing can fluctuate a great deal and is subject to exclusions for large ongoing claims (lasering).
We can help you to evaluate the various alternative to traditional funding that are available in the market and determine if any are a good fit for your clients. Contact your Cornerstone representative today to discuss your options.