b'Summer 2022 WordASSOCIATE w w w. w m i m u t u a l . c o mNews SELF FUNDINGGroup Health BenefitsO employer self-funding of health benefits has grown Over the past decade, immensely. What used to be a program for just very large employers has trans-formed into a platform that even small to mid-sized companies can utilize. My general rule of thumb is that employers should start thinking about self-funding when they have at least 50 employees, and they should strongly consider it when By David Leo, they hit the 100-employee threshold. That said, an employer with the right bal-President of ance sheet and risk tolerance might reasonably consider self-funding outside of WMIMutual those general recommendations.Insurance Company& WMI TPA If this article looks familiar, its because it is verywelfare benefit plan. It should be pointed out that similar to an article that I wrote several years ago.there are variations on the traditional concepts of While the general principles and operations offully-insured and self-funded benefits (e.g., hybrid self-funding have remained consistent, there are alevel-funding plans). Those variations will be couple of tweaks and a few fancy new programsexplored in greater detail in the second part of this that deserve mention (but probably not strongarticle which will appear in the next WPMA News consideration). In this article, we will explore themagazine.mechanics of how a self-funded program works Fully-insured Plans: In a fully-insured plan, and the various roles involved. We will take aan insurance company or health maintenance 20,000-foot view of how self-funding works inorganization (HMO) assumes risk in ex-general terms, and we will oversimplify the variouschange for an agreed upon and fixed premium components of the self-funding platform so you canamount that is usually adjusted every year upon get a sense whether it merits further explorationplan renewal. The employer is responsible to for your business. If at the end of the process youpay the premium each month but is not liable determine it might work well for your business, Ifor claims or administrative costs (which are would invite you to contact me for a deeper divethe responsibility of the insuring entity). The and perhaps even a formal quote.insuring carrier calculates the premium amount, and if the premium exceeds claim expenses How Do Employers Provide/Fund and overhead, the insurer keeps the profit. If, Group Health BENEFITS? on the other hand, the premium is inadequate, Group Health Benefit Programs are generallythe insurer incurs a loss. Once the employer established and maintained in one of two ways.accepts the terms and pays the premium to the They are either: (1) fully-insured under a policyinsuring entity, its money is considered out the that is issued by an authorized health insurancedoor, the employers risk is fully transferred company; or (2) self-funded under a plan thatto the insurance company, and the employer is is sponsored and maintained by an employer.absolved of additional financial responsibility The main difference between these two types ofor direct risk on the claim.benefit plans lies in the entity that actually and Self-Funded Plans: In a self-funded plan, the ultimately assumes the financial risk. Aside fromemployer (i.e., the plan sponsor) establishes that defining and distinguishing characteristic,and funds a benefit program that is designed to these plans are really quite similar because theyassume and pay claim risk. If the plan runs well both cover the same employees and dependents,and the premium/claims loss ratio is profitable, they provide similar benefits, and they offer thethe employer retains the profit. If claim costs same customer service and support. Indeed, withexceed expectations and the plan runs poorly, the exception of the underlying funding mecha- the company is on the hook for the additional nism, the differences between a fully-insured planexpense. In order to protect the plan from great and a self-funded plan are often so subtle thator unexpected financial risk, the employer even participating employees dont know (or care)purchases reinsurance from a licensed reinsurer whether they are covered under a fully-insuredto safeguard against high-dollar claims above a insurance policy or a self-funded employeepredetermined dollar threshold.40 www.wpma.com / Summer2022'