With the increasing healthcare costs and a COVID influenced lens of employee health, many employers are looking at ways to become more efficient. In a fully-insured plan, the insurance company retains the risk for managing the components and adjudication of claims. The employer pays a premium that, by contract, is known in advance of the plan year. In a self-funded plan, the employer is responsible for paying claims as they are incurred and retains the risk for all claims within certain limits of stop loss insurance.
The idea of self-funding can seem complicated; however, almost all plans (fully-insured or self-funded) have the same components. When properly vetted, these components work together to execute on the promise of the plan design.
Components of all health plans (including self-funded):
1. Third Party Administrator (TPA)
The TPA, as the name implies, is the processor or gatekeeper within a health plan. The TPA adjudicates claims, provides claims analysis/underwriting, and communicates with the other vendor-partners within the plan.
2. Pharmacy Benefits Manager (PBM)
The PBM is the access point to pharmacy manufacturers. The primary role is negotiating price with the manufacturer and establishing a formulary (covered drugs + price) that is applied to the plan.
3. Stop-Loss Insurance
Stop-loss, or re-insurance, sits on top of the plan to cover catastrophic losses or claims above certain predetermined limits. These limits could be on a specific (individual member) and/or aggregate (all members) basis.
4. Pay Scale for Claims (Network vs Non-Network)
Consumers/employers have come to expect a network. Networks are established contracts (allowed amounts) between medical providers and the plan. Some plans choose not to have a network in lieu of pricing stablished on a % of Medicare basis (Reference-Based Pricing, RBP).
Bonus: Consumer-driven tools/resources
While not a "required" part of a plan, many plans include consumer-friendly tools and resources that help them navigate the confusing world of healthcare, wellness and insurance.
At the core, whether to be fully-insured or self-funded becomes a question of preferred healthcare finance arrangement, risks (health of the population), and risk tolerance. Self-funded plans open the door to the employer betting on their own performance, while fully-insured shifts the benefits to the insurer.
Not all self-funded plans are the same. Hybrid models like shared and level-funded plans fill the steps between finance arrangements. Self-funded plans can also be bundled or unbundled (See Self-Funding: To Bundle or Unbundle) where an insurance carrier serves as the TPA and manages all components or where the employer contracts with vendor partners individually.
The key starting point for evaluating finance arrangement is understanding the goals and intent of the organization. If the goal is to deliver healthcare to employees, plans can be crafted in a people-centric model as opposed to the traditional insurance product-centric offering.
To see what people-centric means, check out: Are People at the Center of Your Employee Benefits Design?