Health care has seen almost as many changes over the last eight years as technology. With so many changing laws, Business Officers and HR Managers have struggled to stay compliant. But you know this—you’re one of the mighty benefit specialists on your school’s administration team.
That said, there are options to how you design and administer your health benefits, despite the legislative hurdles. Fighting inflating costs by jumping health providers and brokers each year doesn’t have to be part of your routine. What you do need is a basic understanding of the three key health care plan designs, so you can choose a policy that best reflects your school’s mission and culture—and budget.
Three Types of Funding Plans
A fully insured plan is a traditional plan where you are passing all of the risk onto your insurance carrier aside from deductible and co-insurance. Your insurance carrier charges you a flat monthly fee based on how they gauge the risk of insuring your employees. If your covered employees experience health issues and use the plan more, you will probably face an increase in the monthly premium your school pays when your plan renews.
Conversely, if your employees rarely use the insurance, you’re stuck playing a flat monthly rate no matter what. This model decreases the risk of month-to-month fluctuations, but doesn’t provide any meaningful incentive for having healthy employees.
A self-insured plan is one in which your school will pay the actual claims, essentially assuming the role of the insurance carrier. Many large companies offer at least one plan that is fully self-insured, because they have a large pool of covered employees along with the cash reserves to protect against a spike in claims volume or amount.
Historically, self-insurance has been perceived as far too risky in the small to medium sized school market for a number of reasons. Small to medium sized schools typically have less cash on hand and can’t weather a dramatic increase in costs as easily. Also, claims data is very hard to come by in small to medium sized schools so it’s difficult to judge if self-insuring is worth the risk because you don’t even know the risk!
Most small to medium sized schools also lack the manpower in house to actually review and process claims, so they still pay an insurance company to act as a Third Party Administrator (TPA). Though the school is paying the claim, the insurance company will actually process it in accordance with the plan documents and ensure that all protocol is followed.
A new trend in health insurance—level funding—is emerging as a third option a hybrid between fully insured and self-insured. Proponents of level funding argue that it offers the benefits of both insurance models.
The “level” in level funding refers to the fact that you self-insure, but pay a level or steady fee each month as determined by your TPA. Level-funded plans also come fully integrated with individual and aggregate stop-loss insurance to protect the school from high-risk claims.
Individual stop-loss insurance will kick in if a covered employee or dependent exceeds a certain dollar amount in claims. Aggregate stop-loss will be activated above a certain dollar amount for all claims. After you pay your level monthly fee for a year, your TPA will compare what you’ve paid with the actual claims and refund you any difference if you’ve paid more than you’ve spent. In summary, you get the regular and predictable cost of a fully insured plan, but because you’re actually self-insured, you only end up paying for the healthcare costs actually incurred by your employees.
Level Funding vs. Self-Insuring: What’s Right for your school?
Level-funding is becoming popular because plans following this model are not subject to several key regulations of the Affordable Care Act. For example, they don’t have to offer the full package of mandated benefits. Because plans are self-insured, they can be customized for the school. Also, because level funded plans are technically self-insured, business owners also avoid paying the Health Insurance Tax (HIT) levied as part of the Affordable Care Act.
Furthermore, self-insuring your plan gives you more control and discretion as a school administrator to cover claims not normally covered by traditional health care companies and their policies. If you have a tenured employee whose medical treatment would be denied under a fully insured plan, a level funded approach would let you choose if you wanted to cover it anyway as a gesture of goodwill.
Learn more about your health benefit options before your next enrollment period. ISM Senior Insurance Advisers are always open to reviewing school’s unique situations and coming up with creative solutions to match missions with budgets. For more information about your school’s options, contact Martin Kelly at 302-656-4944.
Additional ISM resources:
The Source for Trustees Vol. 10 No. 4 Finding Savings in Your Health Insurance Plans
The Source for Business Managers Vol. 13 No. 4 Are You Compliant? Affordable Care Act Requirements for 2015
