Don’t Take The Hit From HIT.   Self-Insure!!

By: Thomas Goedde CLU, ChFC

One of the traditional reasons that employers cite for self-funding their Employee Medical Care plan is the avoidance of state premium tax.  One of lesser-known elements of the Patient Protection and Affordable Care Act, is a new FEDERAL tax on health insurers that starts at $8Billion in 2014, and rises to $15 billion by 2018.  Of course, insurance carriers pay the tax (Health Insurer’s Tax: HIT), but pass the cost on to their customers in the form of higher premiums.

 Just as with state taxes, smart companies are turning to self-funding to avoid not only the additional taxes, but also some of the new required coverages mandated by PPACA.  Employers of all sizes have options available to them. From Healthcare Reimbursement Accounts (HRA’s) coupled with a high deductible, to full self-funding with reinsurance, there are alternatives to just paying the premium and waiting for the next rate increase under fully-insured options.

 Self-funding is no more than an alternate way to pay for the cost of providing medical benefits for your employees and their families. A company with 100 employees can be close to paying $1 million or more for benefits.  That is a lot of cash flowing to the insurance companies, for claims that might not actually be paid for several months.  The following are good reasons to look into some form of self-funding:

 Cash Flow: Insurance Companies typically set aside 20-30% of the premium you pay for claims that come due after you leave them.  This “reserve for incurred but not-yet-paid claims” is substantial, and your business could be holding and using this cash. 

 Saving Money: Do you feel that your employees are healthier than average?  Do you want to be the beneficiary of the corporate Wellness Program that you support? Are you getting your money’s worth? Self-Funding allows you to pay the right price for your benefits, based on what your employees are using. …and, you have protected yourself against catastrophic claims by buying reinsurance.

 Benefit Flexibility:  Do you have employees in more than one state?  If you are fully-insured, your benefits are different state-to-state based on the state-mandated inclusions for each location.   Your Illinois branch might have Infertility covered, but not so for Missouri employees. Since self-funding can help you avoid ALL state-mandates, (at a savings of as much as 40%), you can offer identical plans to all branches, regardless of their location.

Health Care Reform: The final reason is the avoidance of some of the burdensome requirements of the patient Protection and Affordable Care Act. Insured plans, in addition to the HIT tax, PPACA exempts self-funded plans from some of the required minimum benefits that insured plans must include. Insured premiums will also be affected by limits on ratings (e.g. limits on age bands), community rating (no longer using YOUR good loss ratio to calculate YOUR renewal), and fully-funding the newly required pediatric oral and vision plans, etc.

 By its nature, self-funding carries a measure of risk, since you become the insurance company promising to pay your employees’ claims. It is important to work with a knowledgeable and professional agency like AHM Financial Group, LLC to be certain that stop-loss coverage is in place to protect the firm.  We can guide you in the levels of risk that are appropriate for you to assume. 

 AHM Financial Group, LLC: MANAGING RISK AND OPPORTUNITY!

 Thomas Goedde, CLU, ChFC, Benefits Group Manger

December, 2011