Curious about self-funded health plans but confused by all the jargon? GoHealth is here to help with 10 terms you need to know before jumping into the world of self-funded healthcare:
Let’s start with the basics: What is a self-funded health plan? According to Health Care Administrators Association, a self-funded (or self-insured) plan is one by which your employer assumes financial risk, paying for claims out-of-pocket rather than at a predetermined premium.
Alternatively, a fully-insured health plan, as defined by the Business Benefits Group, puts the financial risk on an insurance company, requiring your employer to pay a large fee upfront to cover costs from employee claims.
3. Fixed Cost
For either plan, your employer pays a fixed cost—an amount that must be paid, regardless of actual expenses. Medcost explains that fully-insured plans are 100 percent fixed cost while self-funded plans are only 18-21 percent fixed cost, potentially saving your employer money.
4. Variable Cost
Additional savings may be acquired if your employer uses soft dollars or a variable cost, setting aside dedicated funds to cover estimated employee claims. If left unspent during the plan year, this amount carries over for future medical expenses.
5. Stop-Loss Insurance
As another precaution, some employers use stop-loss (or excess-loss) insurance to limit the financial risk that comes with self-funded plans. The Health Care Administrators Association describes it as coverage that “provides protection against catastrophic or unpredictable losses.”
6. Claims Corridor
The claims corridor, as defined by OptimaHealth, refers to the area of risk above the expected claims—the amount your employer anticipates to pay based upon your plan’s characteristics. This area acts as a type of cushion for your employer when dealing with unexpected claims.
7. Employee Retirement Income Security Act of 1974 (ERISA)
All self-funded health plans are regulated by the Employee Retirement Income Security Act of 1974 (ERISA). Medcost admits that if self-funded, your employer avoids certain fees (such as the Federally Facilitated Exchange User Fee, the Risk Adjustment Fee and the Health Insurance Provider Fee) and even some state premium taxes.
8. Summary Plan Description (SPD)
A plan’s complete terms and conditions can be located in the summary plan description (SPD). This report is specifically written for your employer and outlines all the coverage and exclusions associated with your plan.
9. Third Party Administrator (TPA)
According to OptimaHealth, employers usually contract with a third party administrator (TPA)—also known as a benefits administrator or administrative services organization (ASO)—to handle paperwork along with payments and other services.
10. Healthcare Reimbursement Arrangement (HRA)
Some employers offer variations of self-funded health plans that are only partially self-insured and include a healthcare reimbursement arrangement. (HRA). This account reimburses employees for medical expenses paid out-of-pocket.
Self-funded health plans can be confusing to understand, especially if you’re starting with a new company that uses self-funded plans. That’s why GoHealth offers many resources to help you navigate this challenging landscape.
Still have questions about self-funded health plans and their terms? Call (888) 332-7557 or visit our website for more information.