Alternative Self Funding 101

Help your group clients gain control of health care expenses by addressing the root cause of escalating healthcare costs

Self Funding

Group health insurance coverage

Even before Health Care Reform was passed into law, alternative self funding based insurance is one of the most popular ways for employers to provide their employees with group health insurance coverage. If your business has yet to offer a plan or if you’re looking for a way to provide better policies with less money, alternative funding could be the option you’re looking for.

Help your employers

With alternative funding insurance plans, your health plan premium payments for your policy are no longer pooled together with others. A portion of your monthly premium payment is set aside into an account set up specifically for your policy. Your employees file claims, and the claims are paid for out of your specialized fund. Since a portion of your premium is being used to pay for only your health plans claims you are no longer paying premiums that help pay for another employers health plans claims.

Reduce Risks

The main reason that alternative funding is more affordable is the reduced risk to insurance providers. This means that your business is responsible for the health expenses your employees incur instead of the insurance provider being held liable. To offset your own risk, stop loss insurance is used. This allows a business to reduce its overall costs and still provide its employees with an insurance policy that they can count on.

Stop Loss Policy

Specific Stop Loss Policy Basics

With specific, individual claims-based policies, your alternative funding insurance policy begins each year with you choosing a specific deductible for each employee. Then, over the course of the year, if their medical claims exceed the deductible threshold you set in your alternative funding policy plan, your stop loss policy kicks in and picks up all claims above that threshold amount.

Aggregate Stop Loss Policy Basics

Another situation occurs when your entire group exceeds the limits of the fund for your alternative funding policy. For example, your claims are all pulled directly from the claims fund you pay into. But if the total claims for the plan year end up going beyond the aggregate deductible, the stop loss policy will cover the claim costs for the rest of the year.

What About Unused Funds?

One key thing to keep in mind with alternative funding is that the funds left over can actually grow over time. With an ERISA based alternative funding program, you may end up receiving funds back if your employees don’t use more than what is allotted for them.

Each policy is structured differently, but you’ll either be able to rollover those funds into the claims account for next year or get a refund for the excess amount, giving you a quick cash windfall near the end of the year.

No matter your ultimate goal, budget, or plan design, alternative funding could be the key to getting the right insurance policy for your business. Contact us today to learn more.

How Does Alternative Funding Work?

Claims

Your employees. In sickness and in health.

Claims fund

Your fund to pay your group's claims

Insurance

Where we come in.

How Does Alternative Funding Work?

If any employee’s claims exceed the specific deductible, stop-loss insurance covers it

Each plan year, the employer selects a specific deductible for each employee (see green line). If any individual employee incurrs medical claims during the plan year, and if these claims exceed the specific deductible threshold, the stop-loss insurance coverage picks up any claims above the threshold for the remainder of the plan year.

Aggregate Stop Loss Policy Basics

If your group’s total claims for the plan year are more than your aggregate deductible, stop-loss insurance coverage picks up!

Based on this example, claims are paid from the pre-funded claims fund. If the group’s total claims for the plan year exceed the aggregate deductible, stop loss insurance covers the employer for the plan’s claim costs for the remainder of the year.

Aggregate Stop Loss Policy Basics

Regardless of the carrier or the program, on an ERISA-based self-funded program there is the possibility of receiving money back from the plan if a group’s overall claims are less than the aggregate deductible.