How Partial Self-Funding Saves a Company Money!

July 13, 2016

 

How Partial Self-Funding Healthcare can save money for your company.

 

This well written partial self-funded example was provided by TransparentRx. 

 

Acme Inc. has 139 employees and is currently fully insured with a "fully insured" carrier. Current Premium is $570,000 annually. Claims experience shows that only 50% of Acme's annual health insurance premium is due to claims experience.


If Acme Inc, sets up its own Self Funded Healthcare plan, with a PPO, and better administration, why can't Acme Inc then retain that 50% savings instead of paying it to the fully insured carrier?

Partially Self Funded Healthcare Quote with Reinsurance for Acme Inc.

 

Specific Deductible:

$25,000.00

Specific Contract Period:

Incurred from [1/1/16] through [12/31/16], paid through 3/31/17

Aggregate Contract Period:

Incurred from [1/1/16] through [12/31/16], paid through 3/31/17


Fixed Costs:


 


 

Employees


 

Employee Only

$116.30

96

$11,164.80

Family

$205.90

43

$8,853.70

Monthly fixed costs


 


 

$20,018.50


Maximum Claim factors/Costs:(Aggregate Factors)


 


 

Employees


 

Employee Only

$141.00

96

$13,536.00

Family

$403.00

43

$17,329.00

Monthly claims (aggregate attachment point)


 


 

$20,018.50


Conventional Equivalents:(total maximum monthly costs)


 


 

Employees


 

Employee Only (fixed + claims factors)

$257.30

96

$24,700.80

Family (fixed + claims factors)

$608.90

43

$26,182.70

Total Maximum Monthly Costs


 


 

$50,883.50

Maximum Annual Plan Year Cost
(worst case scenario)
(Aggregate Attachment Point)


 


 

$610,602.00

Fixed Costs includes: I.D. Cards & Electronic Provider Directories, Plan Document, Employee Only Booklets): Aggregate & Specific Reinsurance, Monthly Accommodation, TPA Admin Fee, PPO, HIPAA, EDI, Cobra & utilization review.

The Fixed costs must be paid monthly. Claim Liability costs are only paid if claims materialize. Acme Incorporated's Worst Case Scenario is $610,602.00. Their fixed costs, which is the amount they must pay monthly is $20,018.50. Then Acme Inc. must reserve $30,865.00 monthly in a worst case scenario for claims.

Analysis: Currently Acme Inc is paying $570,000 for insurance with "fully insured carrier." By going to a self funded healthcare plan Acme Inc takes on a potential $40,602.00 more risk. But this is only in a worst case scenario, which is rare. A worst case scenario is where everything going wrong with the self funded plans and there are catastrophic medical conditions and illnesses. By taking on the extra risk, Acme Inc will most likely save at least over $100,000 in savings versus staying fully insured.

Note: When coming from a fully insured plan to a self insured plan, it is very difficult to get claims experience from the fully insured carrier, and almost impossible to get large claims/shock claims reports. Because of this the Reinsurance carrier does not know the actual risk it is getting into, and assumes a worst case scenario. This means the reinsurer assumes that the group has some medical conditions.

The reinsurer then inflates the claims factors to protect against this. So the employer's rates will seem higher the first year than the current fully insured premium because the reinsurance carrier doesn't know what they are getting into. After your first year, Acme Inc knows what it's claims are running and will get a much more accurate and competitive quote the following year. Once again what you are comparing is not the actual cost of the self funded plan, but it's worst case scenario. The employer must understand they will most likely see significant savings off of this amount.

I can show you how to significantly cut prescription drug spend without impacting current benefit levels or changing providers. Because our business model and contracts are fiduciary, we don't make a single penny on the prescription drugs or rebates unlike many of our competitors. Contact me directly when you are prepared to learn more. 

 

Bill Cross

Benefit Team Insurance Services

President

(800) 248-7114

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