Self Funding-Small Employers

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ferretrick

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When we were looking at our health insurance increase this year, one option our agent touched on was self funding. I've never really paid much attention to self-funding as I work for a company with 12 employees and I thought it could only work for a large employer, but apparently that is changing. We ended up not doing it this year, but my boss was very interested in potentially going that route next year. Has anyone had any experience with a self funded plan, especially for a very small company? Thoughts?
 
You want your boss to authorize you to discuss this with an attorney experienced in this area.

There is too much to risk seeking FREE counsel on this, and its far too complicated to do this remotely.
 
Good advice, but it sounds like at this point he is only asking for thoughts, not detailed legal advice.

Rick if you can private message me I can point you in a direction.
 
Rick, my personal opinion is that self-insuring can be very risky if you have less than 250 employees, and 500 would be better. You'd have to be really careful how you set up your stop-loss. One high risk pregnancy, motorcycle accident or course of chemo and your budget for the year is shot.
 
I have had self funded plans at every place I have worked since 1986. Where I work now is the smallest group I've ever had -- around 68 participants. If you really want to explore this option, I would talk to your broker about having a monthly aggregate maximum. That way if you do have a shock claim in a particular month, the reinsurer kicks in to pay the claims and you aren't fronting the money for claims and waiting to be reimbursed. The industry has really come a long way and is trying to move more employers into self funding so they have come up with all different types of reinsurance plans that make it easier for small businesses. That being said, 12 is a very small group to self fund. Have the broker give you some numbers. I use a TPA out of Pittsburgh PA -- if you like, I can give you a contact person that might be able to give you some insight into self funding a group your size.
 
One thing we did for a few years was to self-fund part of the deductible, but it was a taxable benefit to the employee. Say the old deductible was $1000 and the new deductible was $3000. If the employee met that part of the deductible ($1000-$3000), we reimbursed them for the portion used. Our savings in premiums were higher then though and we only had two employees who ended up using their deductible portion and getting reimbursed. Of course, this was way before PPACA. So I would definitely seek some HR/legal counsel.

Everything I have ever been told is a minimum of 200 and even that was really risky. I would love to know what has changed to undo the risk for just 12 employees. I'd ask your agent for more backup, because I can't see where or how this would work and save you any real money. Even though the 12 might be healthy today, you never know about tomorrow. In one year, we went from literally almost no claims to two claims that are each in the hundreds of $1000s and we only cover 4 families. I am afraid we are in for a major increase in 2015. At that point, we may have to give up our grandfathered plan to get the new rating system under PPACA.

These decisions are never easy.
 
I've done self-funded plans for under 50, but I do not recommend it. It sounds like a good idea but I would seriously wonder about any agent who would recommend this for just 12. Sure your premiums are going to be lower but your costs are not. By a long shot. You are going to get nailed on stop-loss coverage.
 
An FYI for AJ - the posters who generally post on the HR section of this site, have been together for years and are accustomed to bouncing such ideas as this off each other. When our old message board was closed down after the site took on new ownership, Michael was gracious enough to give us a new "home". We're not so much taking legal advice as sharing experiences.
 
@hrforme: What changed is that we are still grandfathered, and originally we were told we were getting a 39% increase, which would have been out of the question. Through a lot of tricks, including changing dental carriers and some hard negotiating, our agent got it down to 12% overall and we were able to stay grandfathered. If we had had to go the ACA rates, we were looking at increases in the 75-85% range for plans similar to our current offering, and still at least over 50% even increasing the deductible RIDICULOUS amounts. Against those numbers, self funding looked attractive.

I do believe in the ACA and that it can work in the long run and for the population overall. For our group specifically in the short term, though, it is UGLY.
 
You're welcome, Rick. :) ................
 
WoW! Those rate increases are way high for a grandfathered plan since they should be using the older rating method! Does that mean you have had a lot of claims on those 12 people(and dependents) to justify the increase? Did something in your demographics majorly change? Either that or were you being majorly undercharged in prior years? Either way, that would be a tough pill to swallow and I would definitely be asking the "why?" on that increase at least on the grandfathered side. Ours was going to be 38% if we didn't stay grandfathered and around 15% if we did. Now at some point, my broker and I have talkd that we will flip the line where staying grandfathered will be more expensive because the rating system under PPACA will help us more (say as we get older or have more claims).

The fact that the carrier wanted to increase so much makes me think they are seeing some type of major risk with your group..before self-insuring, make sure you understand the why of the increase. What factors might they be looking at that you might be missing? (But I tend to be super-analytical and I am sure I ask my broker questions that no one else does!)
 
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