By: Chris Aguiar, Esq.
I read what I thought was a decent article this week on some of the advantages of self-funding but wanted to take an opportunity to comment/elaborate. Always great to see self-funding be touted in the public eye via highly visible media sources. It can certainly be difficult to give a very detailed explanation of this complex risk model in a capped word count article, but something jumped out at me that I thought relevant to note. The author describes self-funding generally as “the employer pays for its own employees’ claims, or at least to a certain amount, while larger claims would be handled by insurance companies”. Certainly that is a model we’ve all seen, but it is indeed only one model and the exact kind of description that drives the misconception that a self-funded plan that uses a traditional stop loss model is not fully self-funded and is therefore insured.
It's important to understand that many self-funded plans do not utilize the hybrid approach this description implies. To the casual observer this description suggests that a $1,000.00 claim is paid by the self-funded plan while a $100,000.00 claim is paid by some other health insurance arrangement entered into by the employer; that’s simply not accurate, certainly not among The Phia Group’s clientele. Rather, for many self-funded plans the plan is at all times responsible for the medical bills and, only after the paying, seeks reimbursement from another insurance company. That company from which the plan seeks reimbursement is not a health insurance carrier, rather, it’s a financial insurance vehicle that protects and ensures the viability of the Plan to make sure benefits continue to be available for all employees/beneficiaries of the plan.
So, just like the $1,000.00 medical bill, the employer/self-funded plan receives the $100,000.00 claim and must evaluate whether it is eligible for coverage and provide said coverage. Only then, does it submit a reimbursement request (assuming the $100,000.00 is above the applicable deductible). It is often the case that for some reason or another, the plan allows for coverage but the request for reimbursement is denied under the terms of the stop loss insurance policy. Certainly, that self-funded plan would tell you that they were unable to “transfer the risk” on that particular claim.
The description above alone is almost 350 words – so we certainly can’t expect an article of about 750 words intended to cover both self-funding and Direct Primary Care, one of the more innovative approaches being utilized by employers to provide more cost effective health plans to their employees, to describe it in depth. Notably, the author did not quote Mr. Thaxter when making that description, so it’s impossible to know exactly how it was described to him. As practitioner in the self-funded space, it’s incumbent on us to do everything we can to educate those who are self-funded, or looking to become self-funded on the benefits, the risks, and strategic and innovative steps that can be taken to minimize the risk and maximize the reward – more cost effective medical benefits!
Catch the article here - https://thebusinessjournal.com/self-funded-insurance-options-come/?fbclid=IwAR3D-CxhWa1vrUy1lkmNMKJTt3cAuucs6v5q7zT4mkQA7ytD9oBQsyl92Pc
By: Kelly Dempsey, Esq.
The drug addiction crisis in many parts of the United States is a reoccurring news headline, so it’s no secret that the prevalence of medical claims related to driving while under the influence of drugs and/or alcohol also appears to be on the rise. Illegal acts and illegal drugs exclusions are prevalent in self-funded plan documents, but the million dollar question is does the wording in the plan document align with the plan’s intent?
There are many different versions of illegal acts exclusions – some include references to misdemeanors or felonies, while others refer to acts that are punishable by any period of incarceration. The first step to ensuring the plan language meets the needs of the employer is to determine what types of acts the employer intends to include in the illegal acts exclusion. This doesn’t mean the plan needs to specifically list examples of illegal acts but instead use broader descriptions. For example, a plan could exclude felonies and misdemeanors, but not civil infractions or minor traffic violations. Unfortunately illegal acts exclusions can be a bit more complex because of variations in state law so it’s important that employers keep this in mind. It’s of the utmost importance that the plan creates an exclusion that outlines the employer’s intentions and motivations for what should be considered excluded under their illegal acts exclusion.
The plan administrator of a self-funded plan will always retain discretionary authority to interpret the terms of the plan document. While self-funded plans have broad discretionary authority as a fiduciary, the plans must ensure this discretion is utilized in a uniform and consistent manner. For example, a self-funded plan cannot be discriminatory with claim payment (i.e. deny claims for Sally who is in a DUI, but pay claims for Joe who was in a DUI). However, in order to avoid a breach of that fiduciary duty in use of their discretion, the plan administrator must not act in an arbitrary or capricious fashion. As we’ve seen in the recent Macy’s court case, it’s important to align plan language with how the claims are administered – so the plan will also need to ensure that the third party claims administrator can process claims in a manner that aligns with the plan’s intent.
As with all exclusions, illegal acts exclusions must be reviewed on a case by case basis to determine their applicability. The key factors are generally a combination of the facts of the specific situation, how the exclusion is worded, and applicable state law and/or guidance. Ultimately, the plan will be using its discretionary authority when determining whether or not to exclude coverage.
Fall is in the air here in New England but the conference schedule is heating up earlier than ever for me. I’m doing the nationwide tour and the focus from audience questions is on two areas – health care reform and self funding. The same people who ask me about reform then follow up with whether self funding is a good move to lower their costs. The interest in self funding is the highest I have seen in my life time so we here at The Phia Group will continue to preach the virtues of this option and how to make it work right.