A self-funded health plan is a funding arrangement in which your organization assumes the majority of your own group’s claims risk. Rather than paying a fixed premium to an insurance company every month (typically known as a fully insured plan), your company partners with an administrator (either a third party administrator [TPA] or an administrative services only [ASO] agreement with an insurance company) who is then responsible for processing and paying claims as they are incurred by your members. Claims are paid out of a bank account created and maintained by your company, and they are funded with your company contributions and your employees’ contributions.
For large, catastrophic occurrences such as cancers and transplants, your organization may purchase individual stop loss insurance coverage to financially protect against high dollar expenses that exceed a certain dollar amount. Aggregate stop loss insurance coverage may also be purchased to protect you from high dollar expenses that exceed a certain dollar amount for the overall group.
- Increased cash flow – instead of paying an insurance company a fixed cost every month, regardless of the number of claims incurred, your company pays claims as they occur, and funding that isn’t used is retained.
- No premium taxes – your organization does not have a premium tax levied against its claims fund, generating an immediate savings when measured against a fully insured health plan.
- Plan design flexibility – as a self-funded employer, you have greater freedom to design your health plan to meet your own needs because self-funded plans are protected by ERISA and therefore, expensive state mandated benefits are not required.
- Lower administrative costs – partnering with an effective TPA provides your company the opportunity to save significant money on administrative fees because operations are inherently designed to be more streamlined and efficient.
- Customized administration – you can choose your own TPA, offering you the ability to align with an administrator who can meet your unique service requirements.
You may choose to partner with a TPA or with an insurance company to administer your benefit plans. In either scenario, the TPA or the insurance company is responsible for the overall operations of your company’s self-funded health plan, including claims processing, customer service, network development, medical management, and interface development between pharmacy benefit managers and stop loss coverage.
The primary and notable difference between a TPA and an ASO agreement with an insurance company is the TPA’s capacity to offer a greater degree of operational flexibility. This is known as “unbundling” of the self-funded health plan. For example:
- A TPA allows your organization to choose your own health plan partners, such as provider network and pharmacy benefit managers.
- Because a TPA does not act in a fiduciary role, your company manages your own claims funds, your own reserves, and your own interest-bearing bank accounts.
- Much like designing a custom-made home, a TPA can easily customize virtually any service or reporting requirement for your company, enabling you to optimize your own control over the health plan.
In a “bundled” arrangement offered through an ASO agreement through an insurance company, your overall flexibility is limited to rules aligned with the insurance company, such as network partnerships, banking procedures, and service protocols. Administration costs are often higher as well.
Since no two organizations are alike, the unbundled customization offered through a TPA is often a compelling solution for self-funded employers who seek to maximize greater control of their health plan at a more affordable price.
For more information about how UCHealth Plan Administrators can help your organization, contact us today.