Self Funded Plan
A Self Funded Plan differs from the most common understanding of group health insurance. Instead of contracting an agreement with an insurance carrier, a Self-Funded Plan offers protection from within an organization or business.
In an effort to control rising costs, employers are constantly examining ways to efficiently improve cash flow without sacrificing benefits. Budget considerations, bargaining, agreements, geography and plan design each have an effect on the way a health plan is funded. In 1974, when the Employee Retirement Income Security Act was passed state laws were removed that required employers to become licensed as insurers when they funded their own plans. Since then, Self Funded Plans have become one of the fastest growing areas in the employee benefit industry. Under a Self Funded Plan, it is usually possible for an employer to reduce operating costs significantly and maintain control of reserves. The reserves may then be:
- Held in a trust, producing tax-exempt interest and therefore reducing the overall expenses of providing employee benefits.
- Held in an interest-bearing bank trust account.
Each year employers invest millions of dollars into employee benefits programs. Typically, this affects the employer's employee compensation budget without producing the desired return for the following reasons:
- Insurance plan designs are inflexible
- Insurance plans consume compensation dollars that may be better spent elsewhere necessary to curb employee turnover and to attract more highly qualified employees.
A Self Funded Plan works like this: The employer decides on a plan of employee benefits with the assistance of a broker or Third Party Administrator (TPA). The plan is often very similar to a plan that insurance carrier would offer. Stop Loss insurance is purchased in order to protect the plan against extreme losses. The amount of risk to be insured will be a function of the employer's size, type, location, benefits plan, financial resources, prior experience and risk tolerance. A plan document is then prepared, with the help of a TPA, containing the exact provisions: eligibility, coverage, termination, benefit description, ID cards and any other materials necessary to complete the plan. Operation of the plan is left up to the TPA.
As a result of these efforts, Self Funded employers have generally experienced the following advantageous results:
- Elimination of Most Premium Taxes
- Lower Operation Costs
- Carrier Profit Margin
- Eliminate Risk Charges
- More Effective Claim Processing
- Improved Cost and Utilization Control
- Improved Cash Flow
- Better Plan Design Control
- Removal of Mandatory Benefits
- Increased Risk Management (Stop Loss Protection
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Health Savings Account (“HSA”)
According to the United States Department of the Treasury, “A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.
You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.”
| | 2007 Single | 2007 Family | 2008 Single | 2008 Family |
Minimum HDHP* Deductible | $1,100 | $2,200 | $1,100 | $2,200 |
| Maximum In Network Out of Pocket | $5,500 | $11,000 | $5,800 | $10,500 |
| | | | | |
| Maximum HSA ** Account Contribution | $2,850 | $5,600 | $2,900 | $5,800 |
| Catch-up Contribution (55+ or older) | $800 | - | $900 | - |
* HDHP = High Deductible Health Plan
** HSA = Health Savings Account
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Health Reimbursement Account (HRA)
Health Reimbursement Account are employer-funded plans. HRAs reimburse employees for incurred medical expenses that are not covered by the company's group health plan. Employers purchase a high deductible plan and can fund anywhere from 0% to 100% of the deductible amount.
Employee reimbursements are considered tax deductible to the employer. Reimbursement dollars received by the employee are usually tax free.
Employee may be reimbursed from his or her employer for qualified medical expenses as an added employee benefit.
The funds received are tax-free. Because the plan is employer funded, the employer has the right to cancel or alter the distributions at any time. In spite of this, many employees consider HRAs as a valuable benefit given the rising cost of healthcare.
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