Self-funding, also known as self-insurance, is a mechanism in which an employer assumes the financial risk for providing healthcare benefits to its employee population. This concept is fundamentally different from traditional health insurance, where an insurance company bears the risk.
In the self-insured model, the employer pays for each out-of-pocket claim as it arises rather than paying a fixed premium to insurance carriers. This approach provides a direct correlation between an organization’s healthcare costs and the health of its employees, offering a powerful incentive for promoting wellness within the workplace.
However, being a self-insured employer doesn’t mean dealing directly with claims payments. In most cases, a third-party administrator (TPA), health care administrators’ association, or pharmacy benefit managers (PBM) is engaged to process the claims on behalf of the employer. These organizations possess specialized expertise in claims management, ensuring the smooth operation of the self-funded health benefit plan.
The Role of Federal Laws: ERISA and the Affordable Care Act
The regulatory landscape is a significant factor in self-funding, with federal laws like the Employee Retirement Income Security Act (ERISA) and the Affordable Care Act (ACA) playing prominent roles.
Enacted in 1974, ERISA allowed employers to offer self-insured health plans to their employees, granting them a great deal of flexibility in designing these plans. As self-funded health plans are exempt from many state laws that apply to traditional health insurers, they are primarily governed by ERISA, offering the employer a uniform regulatory landscape.
The ACA, introduced much later, made several key adjustments to ERISA. These changes were designed to protect the rights of plan participants and ensure that they received the benefits promised to them. Understanding and adhering to these federal laws is crucial for employers to implement self-funded health benefits effectively and in line with regulatory expectations.
Advantages of Switching to Self-Funding
The benefits of self-funding make it an increasingly attractive option for many employers. One of the most significant advantages is the flexibility it offers in plan design. Unlike traditional insurance, self-funded insurance allows employers to customize their health benefit plans to meet the specific needs of their employee population.
They can tailor every aspect, from incorporating wellness programs and offering incentives for healthy behaviors to adding coverage for specific treatments that align with their employees’ needs. This ability to design a personalized plan can not only lead to improved health outcomes but also create a benefit program that resonates more deeply with employees, thereby serving as a powerful recruitment and retention tool.
Another major advantage of self-funding is the potential for significant cost savings. Instead of paying a predetermined premium to an insurance carrier, the employer pays for actual claims, offering more control over healthcare expenditures. This method can help manage cash flow and lower costs over time, especially for companies with healthier employee populations.
Risk Management in Self-Funding
Risk management is an integral part of a self-funded plan. The employer bears the risk for healthcare costs, and while this can offer significant potential savings, it also exposes the employer to the possibility of high-cost claims.
To mitigate this risk, employers often partner with a stop loss carrier. The stop loss carrier provides coverage for catastrophic claims that exceed a certain threshold, limiting the employer’s liability. In this way, a stop loss carrier provides financial protection against unpredicted high costs, ensuring that the employer’s risk is kept within manageable levels.
The Importance of Pharmacy Benefit Manager (PBM)
PBM are experts in pharmacy benefit management and provide valuable guidance and support to employers considering the switch to self-funding. Here are some key areas where their expertise makes a significant impact:
- Plan Design and Cost Optimization: PBMs can help employers design a pharmacy benefit plan that balances cost containment with the needs of plan participants. They have in-depth knowledge of prescription drug costs, formulary management, and the latest industry trends. By leveraging this expertise, employers can develop a plan design that maximizes the value of their pharmacy benefits while keeping costs in check.
- Risk Management: Self-funding entails assuming the financial risk for healthcare expenses. PBM consultants can assist employers in assessing their risk tolerance and implementing risk management strategies. They can analyze historical claims data, identify potential risks, and recommend appropriate measures to mitigate them. This may involve securing appropriate stop-loss coverage to protect against catastrophic claims or exploring alternative risk management approaches such as captive insurance.
- Compliance with Federal Laws: Switching to self-funded health benefits requires employers to navigate various federal laws and regulations. PBMs are well-versed in these regulations, including the ERISA) and ACA. They can help employers ensure compliance, avoid penalties, and develop processes and documentation that meet regulatory requirements.
- Pharmacy Network and Contracting: PBMs have extensive knowledge of pharmacy networks and can assist employers in selecting the right provider networks for their self-funded plans. They can evaluate network options, negotiate contracts with pharmacy providers, and ensure that employers have access to a wide range of pharmacies and competitive pricing.
- Data Analytics and Reporting: PBMs leverage advanced data analytics tools to track and analyze pharmacy benefit utilization and costs. They provide employers with valuable insights into trends, patterns, and opportunities for cost savings. By monitoring key metrics and generating regular reports, employers can make informed decisions and continually optimize their self-funded health plans.
The Role of Third-Party Administration
Third-Party Administrators (TPAs) serve an instrumental role in the pharmaceutical arena, especially concerning self-funded employers. As the intermediaries who process insurance claims, TPAs foster streamlined management of pharmacy benefits, enabling self-funded employers to maintain autonomy over their health plans.
The crucial element in this model is the direct interaction with a Pharmacy Benefit Manager (PBM). This connection allows for an unobstructed view into pharmaceutical expenditures, ensuring cost efficiency.
The transparency inherent in this direct engagement with a PBM unveils the intricacies of pharmacy spend. Self-funded employers gain actionable insights into their expenditure patterns and can leverage this knowledge to better manage their pharmacy benefits, promoting financial sustainability and health plan affordability.
PBMs like MaxCare play a crucial role in processing and settling prescription drug claims. MaxCare creates contracts with pharmacies, thereby determining the in-network pharmacy chains for diverse health insurance plans. Furthermore, their significant participation in overseeing drug discount and rebate schemes introduces an additional factor affecting the final price of prescription medications.
Questions for Consideration
When transitioning to a self-insured plan, an employer must take into account several considerations. These include the size and health status of the employee population, cash flow stability, risk tolerance, and the capacity of the organization’s human resources department to manage a self-funded plan.
Understanding bundled payment options, high-deductible health plans, and the nuances of stop loss insurance are other essential elements requiring thorough exploration. With careful consideration and the right guidance from TPAs, PBM consultants, and a comprehensive resource center dedicated to self-funding, employers can make well-informed decisions that benefit both the organization and its employees.
The MaxCare Difference
MaxCare prides itself on being a Pharmacy Benefit Manager (PBM) that stands apart through a clear commitment to cost transparency through the removal of spread pricing and hidden revenue streams, innovative approaches, and a robust emphasis on accountability and customer service. As a pass-through PBM, our core belief revolves around absolute transparency at each stage. We ensure our clients have a comprehensive understanding of their plans.
Our suite of services includes a thorough evaluation of an employer’s current prescription benefit plan, pinpointing areas for potential savings. In addition to partnering with self-funded employers, our collaborations extend to benefit advisors and Third Party Administrators (TPAs). We offer a distinct pharmacy benefit experience that champions transparency and superior customer service.
MaxCare employs a consultative method to help employers navigate and manage their pharmacy benefit plan effectively. With escalating drug prices, we deploy proactive strategies and tailor-made solutions to keep prescription costs in check. Ensuring exemplary customer service is a priority for us, complemented by our extensive network of 67,000 pharmacies nationwide, offering comprehensive coverage for your employees, wherever they are. Our legacy has always been to appreciate the individualized care that community pharmacies offer, a principle mirrored in our expansive pharmacy network. We’re flexible in adjusting pharmacy access and prescription formularies to accommodate the distinctive needs of each company.
Adopting a self-funded healthcare plan can be a strategic move for many organizations. It offers cost savings potential, customization flexibility, and greater control over healthcare expenditures. However, the transition requires a keen understanding of federal laws, risk management, and plan design.
With the right partners, resources, and a thorough understanding of the ins and outs of self-funding, employers can establish healthcare plans that not only benefit their bottom line but also provide quality, affordable care for their employees.