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American Risk UnderwritersAmerican Risk Underwriters
Presented ByPresented ByJon Dailey ofJon Dailey of
American Risk UnderwritersAmerican Risk UnderwritersDateDate
HistoryHistory
• Labor Management Relations Act of 1947:o Development of tax exempt trusts used
as a conduit for Insurance premiums and direct benefit payments
• Employee Retirement Income Security Act of 1974: (ERISA)o Removed barriers for employers to fund
their own employee benefit plans
Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-Funded Insurance Plans
Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded Plan
Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded Plan
• Understand the Components of a Self-Funded Plan
Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded Plan
• Understand the Components of a Self-Funded Plan
• Understand the Underwriting Components of Specific and Aggregate Coverage
Learning ObjectivesLearning Objectives
• Compare and Contrast Fully Funded and Self-Funded Insurance Plans
• Learn Terminology and Definitions of Self-Funded Plan
• Understand the Components of a Self-Funded Plan
• Understand the Underwriting Components of Specific and Aggregate Coverage
• Understand the TPA’s Key Administration Role
Fully Insured Plan ComponentsFully Insured Plan Components
• Profit Contribution• Margin• Premium Tax• Commissions, Fees• Insurer’s Field Expense• Claim Payment Costs• Administrative
Expenses• Rate Stabilization
Reserves• Claims Reserves
Premiums
ClaimsInsurance
Policy/ Certificate
Expenses
Self-Funded Plan ComponentsSelf-Funded Plan Components
Specific •Aggregate•
• Claim Component Costs
• Administrative Expenses
• Stop Loss Insurance
• PPO/UM/ Vendor Costs
Contributions
Claims Employer Health Plan Expenses
Fully Insured vs. Self-Funded Fully Insured vs. Self-Funded
• All Services Providedo Utilities Paido Facility
Maintained• Rules and
Restrictions Apply• Profit to Owner
• Determine and Purchase Serviceso Choose Favored
or Lowest-Cost Service
o Design Your Plano Controlo Financial
Position
“Renting”
“Owning”
Advantages of Fully InsuredAdvantages of Fully Insured
• Carrier processes and pays claims as well as provides all of the benefit management services
• Carrier is responsible for establishing claim reserves
• Employer group pays deductible rates each month during contract period
• Carrier absorbs excess loss
• Individual claims exceeding pooling point are paid by carrier
• Upon termination, carrier has responsibility for run-out claims
Disadvantages of Fully InsuredDisadvantages of Fully Insured
• No refunds to policy holder
• Must include State and Federal mandates
• Carrier identifies/keeps Reserves; employer pays
• Highly regulated by DOI’s
• It’s not Stop-Loss
Self-Funded Economic BenefitsSelf-Funded Economic Benefits
• Premium Taxes
• Cash Flow
• Mandated Benefits / Regulation
• Self -Administration
• Profits
Premium TaxPremium Tax
• Savings Between 1.5% to 3.5%
Cash FlowCash Flow
• “Pay as You Go” or Trust Fund
• Checking Account or Reserve Fund
• Monthly Aggregate Advance
• Fiduciary Responsibility
Mandated BenefitsMandated Benefits
• Legislated Benefits or Design Choice
• Additional 5%-7%
AdministrationAdministration
• Fully Insured Costs 15% - 20%o Managemento Marketingo Advertisingo Legalo Logistical
• Self-Funded Costs 3% - 5%
ProfitsProfits
• Publicly Traded Carriers = Pressure for Higher Profitso Influence On Decisionso Pressure On Providerso Carrier can generate “profit” by admin
processes
• Fully Insured Profits 8% - 15% by design ….
Self- Funded Economic Advantage Self- Funded Economic Advantage SummarySummary
Tax: 1.5% - 3.5%
Cash Flow: 1.5% - 3%Mandated Benefits: 5% - 7%
Administration: 12% - 15%
Profit: 8% - 15%
Potential: 28% - 43.5%
Advantages of Self - FundingAdvantages of Self - Funding
• Lower Costso Premium Taxo Profit Marginso Operating Expenseso Cash Flow
• Control of Plan Designo No Benefit Mandateo Controls own
Reserves• Tailored
Administrationo Choice of
Services/Provider
• Effective Claim Processing
o TPA Relationship• Effective Risk
Managemento Choice of Specific or
Aggregate
Disadvantages of Self - FundingDisadvantages of Self - Funding
• Employer Becomes Insurer
• Risk Assumption
• Provision of Services
• Asset Exposure
The Product – Specific and The Product – Specific and AggregateAggregate• Specific Stop Loss
o Form of Excess Insurance Coverage that provides protection for the Employer against a high claim on any one Individual.
o Reimbursement generally after Specific deductible is satisfied.
o Specific Advance
The Product – Specific and The Product – Specific and AggregateAggregate• Aggregate Stop Loss
o Provides a ceiling on the dollar amount of eligible expenses that an employer would pay in total during a contract period.
o Reimbursement generally at the end of the policy period.
o Monthly Option Available
Policy PeriodsPolicy Periods
• Fully Insured o Incurred During the Policy Period (Effectively 12/24)
• Self – Funded – Variations in Effective Dateo 12/12 – Incurred and Paid During Policy Periodo 15/12 – Losses Incurred Three Months Prior To
Inception but Paid During Policy Periodo 12/15 – Losses Incurred During Policy Period and Paid
Up To Three Months After Policy Periodo 24/12 – Losses Incurred During Twenty-Four Month
Period and Paid During Twelve Month Period
o Other Variations Include:12/24, 18/12, 12/18
Self – Funded Work FlowSelf – Funded Work Flow
Administration Services
Employer & Employees
Plan Benefits Paid
Stop Loss Trust Fund Accumulation
Reserves
Stop Loss Premiums
Investment Income
Monetary ComparisonMonetary Comparison
Fully Insured Self- Funded
100%Fixed Costs Variable Costs
Fixed Costs
Stop-Loss UnderwritingStop-Loss Underwriting
• Data Requiredo Current Census
• DOB, Sex, Dependentso Current Disabled or COBRA Participantso Current SPD/Summaryo Current and Estimated Participants by Percentageo Other Carriero Current Funding Methodo Current TPA and PPOo Commission Requestedo Paid Claims – 24 monthso Large Claims (At 50% of requested Spec. level) – 24
monthso Current/Corresponding Specific Level
Stop-Loss UnderwritingStop-Loss Underwriting
• Coverage Requestedo Specific Deductible Levelo Claim Accumulation (12/12, 12/15, etc.)o Current Specific Rateso Aggregate Coverage and Claim
Accumulationo Current Factorso Annual Maximum Requestedo Benefits to be Covered
•Specific: Medical, RX•Aggregate: Medical, Dental, Vision, etc.
Stop-Loss UnderwritingStop-Loss Underwriting
• Request for Proposal (RFP)o Proposed Effective Dateo Employer Nameo Address, City, State, Zipo Other Locationso Nature of Businesso SIC Code(s)o Due Date
TerminologyTerminology
• Risko Possibility of loss; Subject to insurance
• Premium Componentso Cost of Healthcareo Reserves: Funds set aside to pay claimso Retention: Expenses or administrative costs
• Aggregate Factoro The dollar figure that is multiplied by the number of covered
persons each month during the contract period to calculate the AAD. It includes expected claims plus margins
• Aggregate Stop Losso The form of excess risk coverage that privides for the
employer againast the accumulation of claims exceeding a stated level. This is protection against abnormal frequency of claims in total rather than abnormal severity of a single claim.
• Annual Aggregate Deductibleo This number represents the overall limit of claim liability for
the group (employer). Beyond this point the Stop Loss policy indemnifies the group at the end of the contract period.
TerminologyTerminology
• Actively-At-Worko A contract provision that provides that the covearge will only be
available for employees actively at work on a full time basis on the effective date of coverage.
• Paid Claimso A payment made for health services (covered benefit) rendered
• Catastrophic Claimo A claim so large that it materially effects the group experienceo Pooling in fully insured or specific excess in self-funded
• Incurred Claimo Provider services rendered but not yet submitted for payment
• Run-in Claimso Claims from a prior plan or carrier
• Run-out Claimso Claims incurred prior to but reported/paid after contract
termination
TerminologyTerminology
• IBNR/ RBNPo Incurred but not reported claims; reported but not yet paid
• Experienceo A comparison of total dollar amount paid premium versus paid
and incurred claims• Experience Rating
o Use of an employers loss experience to determine rate level• Lag
o Period of time between incurred and paid claimo Reserves established to recognize lag
• Plan Fiduciaryo Responsible for administration and management of employee
benefit planso Generally the employer who buys services from TPA in turn
• TPAo Provides host of administrative serviceso Fiduciary
TerminologyTerminology• MGU
o Managing General Underwritero Provides underwriting, rating and claims services on behalf of a
Carrier• Trend
o Measurement of change over time in the cost of health care using industry information and medical inflation
o Adjusts the cost of claims paid in the past to present value• Expense
o TPA Administration feeso Stop-loss premiumso Broker commissions
• Medical Inflationo Annualized factor on the cost of providing healthcare and Rx
services• HIPAA
o Health Insurance Portability and Accountability Acto National administrative provisions and security/privacy of health
data• Conversion
o Carrier provides the conversion of medical coverage to an individual basis for employees terminating from the plan
Test Your KnowledgeTest Your Knowledge
• What is Stop Loss coverage?• Who is insured?• What coverage is available?• How is Stop Loss written?• What is the role of the employer’s plan
document?• How is Loss defined?• When are claims paid?• What happens when someone leaves the plan?
DiscussionDiscussion
• SIIAo Model Self-Funded Plan
• A Current Prospect