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Self Fund

WHY SWITCH TO A PARTIALLY SELF-FUNDED PLAN?
Traditional medical-dental benefit plans are designed to generate profit to the company issuing the plan.  The structure is as follows:

FULLY INSURED
PROFIT
OVERHEAD
ADMINISTRATION
PREMIUM TAXES
COMMISSIONS
RESERVES
CLAIMS OR BENEFIT PAYMENTS

At least once a year the plan is reviewed in light of the insurance company’s overall experience.  Based on that review, your fully insured rates are increased to offset the total losses and contribute to the profit goals of the insurance company.
Self-funding allows a company to cut out the health providers’ excess charges, yet still provide the same, if not better benefits.  Above all, you, the employer, control the plan, not the insurance company!

SELF FUNDED
ADMINISTRATION
RE-INSURANCE
CLAIMS OR BENEFIT PAYMENTS

By cutting out excessive charges, re-insurance plans operate to the financial advantage of the partially self-funded group-in most cases lowering the cost of benefits, over time, by 15% to 20%.

WHAT ABOUT “RISK”?
Risk is completely absorbed by the re-insurance contracts issued to cover partially self-funded groups.  These contracts are as follows:

Specific Individual Re-Insurance (Pooled)
Based upon the number of employees covered, a Risk Assumption Level (RAL) is established.  This is the total amount of each person’s claims your company feels it can safely and judiciously self-fund.  Every claim dollar above your established RAL is paid by the reinsurance contract.  RAL’s can be set from $5,000 to $500,000.  Individual catastrophic claims are absorbed by this coverage and since this coverage is “pooled”, it is not “experienced rated”.

Aggregate Re-Insurance (Experience Rated)
This is the “Umbrella” policy placed over the Risk Assumption Level (RAL).  An actuary establishes a factor which indicates the amount to be placed into your claims bank account.  All claims under your chosen RAL will be paid from this account.  This actuarial figure also establishes a level at which fund payments are capped, or losses are “stopped”.  If this level if ever met, either on an annual or monthly basis, dollars are no longer paid from your fund; they are paid by the re-insurance company.  This “stop-loss” caps the maximum exposure to your fund.  If claims paid never reach this point, then claim dollars remain in your fund.  The above mentioned calculations usually result in over-all costs less than the fully insured premiums you are paying at present. 

HOW PARTIAL SELF-FUNDING WORKS
You, as the employers, establish a tax sheltered Benefit Fund.  Deposits and withdrawals are made as follows:

COMPANY/EMPLOYEE BENEFIT FUND
(501 Tax Exempt Trust)
Deposits → (Expensed by your company)
Interest →(Accumulates tax free)

PLAN FIXED COSTS
Re-Insurance Premiums Administration and Network Rental Fees(The Plan “rents” a network of its choice thereby taking advantage of established discounts.)
Claims or Benefits Payments→(The Plan Administrator processes claims based on the Plan designed by the employer.)

PLAN VARIABLE COSTS
Stop-LossPolicyProtects FundFrom too many RAL Payments
Claims Above RAL level Paid by Reinsurance

RAL LEVEL
Claims Below RAL Level Paid by Your Reserve Fund
Reserve Fund Held in Your Bank Account

RESULTS OF PARTIAL SELF-FUNDING
Best Case       =  Any claims experience less than 100% leaves money in your fund, not in the insurance company’s coffers.
Worst Case     =  In most cases, no more financial exposure than if the company was paying monthly premiums into a fully insured plan. 

ADDITIONAL BENEFITS CREATED BY PARTIAL SELF-FUNDING
Plan Control:  Monthly reporting provides a current information on all aspects of the fund thereby allowing complete control over benefits and funding levels.  Self-Funded Plans are exempt from state mandated benefits.  This allows you, the employer, to decide what is best for your employees.

Cash Flow:            
Unlike fully insured plans, the policy will not be terminated for “non-payment” of premiums. If “Fund” reserves are adequate, future deposits to the fund can be controlled based on cash availability.

Tax Advantages: Taxable Income could be decreased at the end of any  given fiscal year, by legally pre-funding for anticipated future “benefit” expenditures thereby saving income tax dollars.

The “KEY” to the successful operation of your self-funded plan is the claims administrator.  As one of the oldest and most experienced administrators in the country, Smith Administrators is the ideal choice as you initiate a self-funded program.