Three Cost Components:
1. The company pays an administer to adjudicate and pay its employees’ health claims.
2. Insurance premiums are paid on a policy to limit company losses from large claims. The policies establish the claims liability maximums, above which the carrier pays any claims.
a. The first type of policy is a “specific stop-loss” policy. This policy will pay claims that exceed some specified amount (e.g., $25,000) for any one claim.
b. The second type of policy is an “aggregate stop-loss” policy, which limits combined risk for all claims under the policy.
3. The company pays its employees’ actual claims, as limited by the stop-loss policies and Schedule of Benefits.
Benefits of Self-Funding
• Self-funding treats predictable claims cost as expenses rather that as insurable risk items.
• Employers determine the amount of risk that is appropriate for their company.
• Employers purchase stop loss insurance to protect against catastrophic claims.
• Risk changes, insurance company reserves and most premium taxes are avoided.
• Self-funded plans are governed by ERISA instead of each State insurance law.
• A self-funded plan, the employer can either fund expense as it’s incurred or deposit the expected maximum cost into an account each month to build a reserve.
• A Third-Party Administrator becomes your Claim Administrator to service your employees.
• Lower costs, Greater Flexibility, Cost Management, Information Management, and 24/7 access to your plan.