Self-Funding Part 2

In an earlier post we discussed some of the differences between fully insured and self-funded health plans. In this post we will take a closer look at the self-funded plans and what I consider their two biggest weaknesses: cash flow and compliance.

Cash Flow

As a review, there are two main categories for self-funding: traditional self-funding and hybrid self-funding. In my experience, both products are ultimately written with a traditional self-funding type contract, meaning the claim payments would be reimbursements. Most companies couldn’t take on that kind of risk. However, in the last decade or so, carriers and underwriters have started to include riders and additional products to the contract that allow for advanced funding to be made by the carriers/underwriters. This was a big deal as, up until that time, companies had to pay all medical claims first, no matter how large, before they could get reimbursed by the carrier. Companies with less than stellar cash flow situations started entering the market due to the lower risk, but many found out quickly that the risks weren’t as low as they planned. If the hybrid product was provided by the underwriter, they still had to meet the standards and timelines of the carrier they were purchasing the policy from. Therefore, most riders have stipulations stating that during the last 30-60 days claim payments will not be advanced, meaning companies would have to pay for all medical claims, regardless of how much they cost. Your claims would still be covered, but the policy reverts back to the reimbursement contract and the insured would need to cover all claim cost. This is quite a shock if it wasn’t found and pointed out in the contract beforehand. There are other situations and conditions where the advance payments wouldn’t apply and the insured could find themselves in cash flow emergencies. Always make sure every part of the contract and any additions, attachments, riders, etc. are reviewed and understood before signing a new policy.

Compliance

Another unexpected challenge companies might face are compliance requirements. In fully insured environments, the carriers are fiduciaries, and can take on the compliance responsibilities. In most self-funding environments, the company gives no such fiduciary rights, thus holding onto those compliance responsibilities (requirements and penalties). While the companies (the insured) are ultimately responsible for compliance, any decent TPA or agent should, at the very least, keep the companies informed of compliance requirements.

These scenarios may sound frightening and there are plenty of true horror story examples to go along with them, but with the right planning and a broker experienced in the self-funding arena, these risks can be decreased, if not eliminated completely.