A majority of medium size companies; those with 500 to 2,000 employees choose to “Partially Self-fund” their employee medical benefits. Most do so with the expectation that by “Partially Self-funding” they will reduce their overall cost compared to being “Fully Insured”. Unfortunately, many do not realize the savings they expect because they fail to understand and recognize the managerial responsibilities inherent with self-funding their medical plan.
One major decision after becoming “Partially Self-funded” is to select a reinsurance carrier to provide coverage for unusually high claims. As part of this process, companies must select claim payment limitations that are applicable to individuals and also to the group as a whole. These thresholds are referred to as “Specific” and “Aggregate” Attachment Points respectively.
- An example of a “Specific” Attachment Point would be for the reinsurance company to pay for all claims on a single individual greater than $50,000, (the Specific Attachment Point) during a policy year. Of course, the reinsurance policy must be in sync with the Summary Plan Description (SPD), the Third Party Administrator’s Claim system and the provisions of the Carriers Reinsurance agreement. Without going into the specific details of the reinsurance provisions, there are typically 25 to 35 variable provisions in a reinsurance agreement that must match exactly with the SPD and a TPA’s claim paying system. Otherwise, requests for specific reimbursements will be less than expected. Unfortunately, companies don’t recognize these inconsistencies until expected reimbursements are denied. A claim audit will help to uncover these inconsistencies as well as other administrative deficiencies of your TPA.
- An “Aggregate” Attachment Point is determined by the reinsurance carrier and is typically 25 to 35% greater than their estimate of expected annual claim payments. For example; for 500 employees with expected claims of $10,000 each, the expected claims for the entire year would be $500,000. With an additional corridor of 25% ($125,000) the attachment point would be $625,000. If all policy provisions are met, annual claims for the entire group greater than $625,000 would be reimbursed by the reinsurance carrier. Again, there are plenty of caveats specified in the agreements that must be adhered to.
Remember, your decision to “Partially Self-fund” was based upon the expectation that claims above the “Specific” and/or “Aggregate” Attachment Points would be reimbursed as anticipated; but did you check to see if your SPD, the reinsurance agreement and the TPA were all in sync?
An independent claim audit is truly the most effective safeguard all self-funded employers should consider. Claim audits at a minimum have a return benefit of 2 to 5% of annual claims. Auditing your claims will allow you to not only keep tabs on your plan’s performance but it will also put your administrator on notice that you plan on holding everyone accountable and working toward continuous quality improvement of your “Partially Self-funded” medical plan.
Contact us with any questions you may have about your responsibilities managing a “Partially Self-funded” medical plan. We are always glad to help
Claim Technologies Incorporated is well versed in performing audits of “Partially Self-funded” medical plans and can provide you with the assurance you need to be successful in the management of your plans.