FAQs: Self Insurance

What is self insurance?

Under self insured plans, the employer provides health benefits to employees using its own funds, rather than pay fixed premiums per employee per month to a health insurance carrier. The employer is responsible for funding payments needed to pay for plan benefits and pays for claims as they are incurred.

An essential principle of self insurance is the concept that health insurance protects against two areas of exposure: predictable costs and unpredictable costs. Self insured employers assume the risks associated with predictable claims costs. Unpredictable costs, such as shock claims or catastrophic losses, are generally covered under stop loss (excess loss) contracts issued by an insurance carrier.

Self insurance provides a proven and effective mechanism for employers to control the flow of its money, gain investment income, and gain complete control of the health benefits plan design.

What is stop loss?

Stop Loss, also known as Excess Loss, limits an employer’s liability so that the employer does not take 100% of the risk for catastrophic claims. Under stop loss, specific coverage covers catastrophic claims on one individual at a specified deductible (also known as employer’s retention). Aggregate coverage covers claims that significantly exceed the expected claims level for the entire group of covered persons (the aggregate attachment point).

Who is Sterling’s stop loss carrier?

Sterling has contracts with multiple “A” rated stop-loss carriers, enabling us to work with clients with a small employee population, as well as with large corporations. We work with clients who have claims experience and those who don’t throughout the country.

Why is self insurance gaining in popularity?

The passage of the Patient Protection and Affordable Care Act (PPACA), commonly known as Healthcare Reform, makes self insurance more appealing than ever because self insured employer plans are exempted from state mandates and explicitly exempted from some requirements under PPACA. Less than 20% of the current reform mandates apply to self insured arrangements.

Self insured plans give employers greater cost control. Health benefits costs for employers increased at a rate of 7.3% in 2011 and are expected to increase by 8.5% in 2012, considerably more than the general rate of inflation as measured by the CPI. By self insuring, employers have greater control over cash flow as funds are expended only when employees submit a claim. Moreover, Sterling’s disciplined approach to benefit design increases the opportunities for cost savings as employees are engaged more directly in cost-effective alternatives. Finally, employers enjoy access to and transparency of utilization data to guide wellness programs and other strategies designed to reduce cost. Employers can review reports on a regular basis and monitor trends specific to the company workforce.

How many people are covered under self insurance?

The number of employees in the U.S. covered under self insured health plans has increased from 44% in 1999 to nearly 60% today. The fastest growing market segment is employer sponsored groups with fewer than 1,000 employees – 29% of employers in 2008 compared to 48% in 2010.

How does self insurance compare to fully insured plans?

Fully Insured:

• Employer pays a fixed monthly premium to the insurance carrier.
• Premium covers expected claims and administrative costs, as well as insurer’s risk charge.
• When claims are lower than expected, the insurance carrier keeps the difference. If actual claims are higher than expected, insurance carrier pays the difference.
• There is little transparency for employers to understand the details of healthcare costs and little incentive for employer engagement.
• Frequently, there is little incentive or engagement on the part of employees to make healthy, cost conscious choices.

Self Insured:

• Employer pays a fee to a plan administrator (TPA) who performs functions such as claims processing and securing discounts from providers and to a stop loss reinsurer who pays for claims above a predetermined level.
• Employer pays the actual claims incurred by enrolled employees and their dependents and must budget accordingly.
• Employers can design the health plan to meet the needs of the company and employees, including real incentives for employees to participate in wellness and pharmacy care management programs that reduce costs.
• Employers have a direct financial incentive to be much more proactive in engaging employees to improve health status.

What is Sterling SIA’s role in self insurance?

Sterling functions as a third party administrator (TPA) to manage the employer’s self insured plan. We do so through our partners and our own staff and proprietary systems. Sterling works with employers and their benefits consultants to develop custom benefit design, underwrite stop loss insurance, implement the benefit plan, manage the Sterling HealthAssets™ accounts for employees, and provide customer support to employers and employees.

Contact us today for more information.