By Dave Lenckus
An ironic impetus of self-funding for small and mid-sized employers is the insurance regulatory community, which is investigating how it could discourage those health plan sponsors from keeping plan members out the insured marketplace.
If those employers decide to self-fund, they will have to ensure they understand the difference between a group captive and another group arrangement that also is governed by the Employee Retirement Income Security Act and regulated by state insurance officials.
They also will have to determine which of a few ways to group together.
Benefits and captive experts report that small and mid-sized employers that sponsor employee health plans with from 50 to several thousand lives each increasingly are investigating joining group captives to create much larger pools of covered lives. Large plans are better able to control health care costs than small plans.
The vast majority of small employers are fully insured, said Sam Fleet, president of wholesale broker AmWINS Group Benefits of Warwick, R.I. Only about 13 percent of employers with one to 199 lives self-fund. Among those with 200 to 999 lives, that percentage jumps to 50 percent, he said.
The National Association of Insurance Commissioners is contemplating amending its existing stop-loss insurance model law, No. 92, to make self-funding more difficult for small employers. The issue has arisen as the organization's ERISA Working Group has reviewed how the Patient Protection and Affordable Care Act treats self-funded plans.
In an Oct. 27, 2011 memo, the working group requested that the NAIC's Health Actuarial Task Force analyze whether and how the minimal attachment points that were established in the model act in 1995 should be updated.
"The question remains whether the ability of employers to self-fund and move in and out of the insured marketplace depending on the relative health of their employees will place the stability of the fully-insured marketplace materially at risk after Jan. 1, 2014, when all plans will be guarantee issue, community-rated with no medical underwriting or pre-existing condition exclusions," the working group's memo states.
Benefits experts say insurance regulators are concerned that if too many small employers self fund, then the insurance exchanges the PPACA requires states to establish would be left with an adverse selection of participants. Benefits experts said the NAIC is considering raising the self-funding eligibility threshold to 100 employees from 50 and the minimum specific stop-loss coverage attachment point to $40,000 per claim from $25,000.
Smaller self-insured employers need medical stop-loss coverage to attach at $25,000 or $35,000 per claim to protect their balance sheets, said Jim Edholm, president of Business Benefits Insurance Brokerage Inc. in Andover, Mass.
But that attachment point is so easy to hit that the cost of the coverage is high, making self-funding "self-limiting," Edholm said.
Still, he said, "I'd prefer the market to do that than have some arbitrary organization -- governmental or the NAIC -- make the decision for me."
Regulators also have a misperception that employers can move in and out of self-funding arrangements easily, said Mike Ferguson, chief operating officer of the Self-Insurance Institute of America Inc. of Simpsonville, S.C.
There is considerable effort involved in winding down a self-funded plan, Ferguson said. Plus doing so results in losing access to claims data, a key tool used in driving down health care costs, he said.
Another point of confusion for some employers is how a group captive differs from a Multiple Employer Welfare Arrangement, another ERISA-regulated arrangement supervised by state insurance officials. In a MEWA, employers ban together to provide their employees health coverage but do not share risk among themselves.
In addition, unlike a captive, a MEWA must be licensed in every state where it provides coverage, said Karin Landry, managing partner at Spring Consulting.
Sponsors trying to put together group benefits captive often confuse the two types of facilities, said Steve Kinion, director of Delaware's Bureau of Captive and Financial Insurance Products.
Kinion, who is not Delaware's MEWA regulator, said he has had to send some potential sponsors away until they could prove that the facility they were promoting would not be a MEWA.
Experts offer different thoughts about whether employers would be better served grouping together with others in their industry. The advantage of employers in the same industry grouping together is that their plan members likely have similar health issues, so the same methodologies can be implemented to improve the health of every employer's group, said Fleet of AmWINS and John Cassel, a senior partner at Spring Consulting.
But some experts say a heterogeneous group can work as well.
"It doesn't really matter if they're in the same industry or not," said Arthur Koritzinsky, a Norwalk, Conn.-based managing director in Marsh Inc.'s Captive Solutions Group. "Like-mindedness" in all that goes into a health plan funding arrangement is key.
Among the most significant elements that group captive participants have to agree on are health plan options, provider networks, wellness initiatives, prescription drug programs and other cost-containment programs, experts said.
Captive expert Kathleen Waslov agrees on the importance of employer affinity but said that industry is only one potential common thread. Community is another, said Waslov, a Boston-based a senior vice president and the senior resource consultant in the Captive Consulting and Multinational Employee Benefits practice at Willis North America, Inc.
Willis is in the process of populating a Vermont-domiciled group captive with employers in different industries that operate in the same community and therefore share health care providers. The employers in the community, which Waslov could not disclose, have up to 3,000 employees each, she said.
Employers that group together with others in the same industry but located in a different community with more expensive health care would end up subsidizing the other group's health care costs, Waslov said.
March 1, 2012
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