Amazingly many overseas hospitals don’t know what self funded health care is (sometimes referred to as Self Funding). Every hospital should, because self funded healthcare is one of the few ways for hospitals to tap into the patient pool for Americans that already have health insurance coverage, but may choose to go overseas for healthcare rather than receive it domestically in the U.S. Understanding how Self Funded Health Care fits into Medical Tourism is a key factor in the growth of this industry.
U.S. Employers juggling the high costs of healthcare are always looking for solutions, flexibility on benefit coverage, and ways to reduce the cost of their healthcare. Partial Self Funding/Self Insurance with Stop Loss Coverage is an attractive alternative to employers utilizing a fully insured plan such as BCBS, CIGNA, AETNA, Humana or United HealthCare.
What is a Self-Funded / Self-Insured Plan?
A partially self-insured, or self-funded plan, is one in which the employer assumes a portion of the financial risk in providing health care benefits to it’s employees. The employer chooses a plan of benefits, which may be similar to or identical to the employer’s current fully insured plan. Rather than obtain medical coverage from an insurance carrier (such as BCBS or Aetna), the employer elects to fund the risk of medical claims up to a certain level where a Reinsurance or Stop Loss Insurance carrier is brought in. For larger employers, no reinsurance or stop loss insurance is brought in and the employer is fully 100% at risk for all medical claims.
Stop Loss or Reinsurance is designed to limit the employer’s risk of self funding their healthcare and limits the losses for medical claims to a specified amount, to ensure that large, or unanticipated claims, do not upset the financial integrity of the self-funded plan. The level of risk an employer takes on with self funding and the point at which a reinsurance or stop loss insurance kicks in is in direct relation to the employer’s size, nature of their business, past medical claims experience and tolerance for risk.
Normally, in self funded arrangements, a Third party administrator (TPA) administers the plan. A TPA performs the same functions that a fully insured carrier would. A TPA’s responsibility includes maintaining eligibility, customer service, managing a network of contracted providers, adjudicating and paying claims, managing and negotiating claims, preparing claim reports, plus arranging for managed care services such as network access and case management.
Self Funding – A Comparison to Fully Insured Plans
Everything that is provided in a fully insured health plan is duplicated in the self funded health plan. (Everything that the fully insured carrier offers in a fully insured plan, is offered in the self funded plan – from PPO networks to benefits, such a co-pays, deductibles and coinsurance.)
The difference is that with the partially self funded plan the employer holds the cash needed to fund benefits (claims from providers), and instead of sending the fully conventional premium to the insurance company (such as BCBS or Aetna), only a small fraction of the conventional premium is sent in to the reinsurance carrier and a small amount to the TPA. The employer purchases reinsurance for protection, holds the remainder of the conventional funds (claim funds), invests them, segregates them if desired, or utilizes them for general business purposes until they are needed for the funding of medical claims. The employer retains and keeps the funds when claims do not materialize, hence realizing further profit. So, if an employer was paying BCBS or Aetna $5,000,000 a year in premiums, and the employer’s employee claims were only around $2.5 million, then it is possible for the fully insured carrier to walk away with close to $2.5 million in profits. If the employer self funds, the employer is the one who walks away with the $2.5 million dollars in savings at the end of the year.
Example A: (Fully Insured Example)
Acme Company is fully insured with a Fully Insured Carrier and pays a premium of $1,500,000.00 annually for their health insurance plan. Claims experience shows that Acme Company only had $1,000,000 in claims and administration expenses. The fully Insured Carrier keeps the $500,000 in profits.
The advantages of self-funding are many. There is tremendous flexibility in the benefit plan design. You can decide what you want to cover and what you don’t, whether it’s certain vaccinations, chiropractors, injectibles, obesity, or infertility. Another major advantage, is portability from one carrier to another. There’s no disruption in plan when you shift between reinsurance carriers. You don’t have to start all over again with new I.D. cards, booklets and How does Medical Tourism fit into it? & doctors, the way you do with the fully-funded plans. Also, for employers with more than one office, it is possible to offer the same plan to everyone in every location. This makes it so much more administratively efficient. By Self Funding an employer can utilize one national PPO network or multiple local PPO networks with the same benefit plans. But the bottom line, is cost savings.
Example B: (Partially Self Funded Example)
Acme Company’s group health insurance is self funded with a Third Party Administrator with reinsurance. Acme Company’s potential worst case scenario for the year is 1,600,000 annually (what they would have paid to a fully insured carrier). Acme Company pays $20,000 a month in fixed premium costs and holds in claims reserves $1,360,000 for potential claims. The $1,360,000 is retained by Acme Company and it is theirs to utilize as they see fit until claims materialize. At the end of the year Acme Company’s claims are $1,000,000. Their fixed premiums were $240,000 for a total of $1.24 million. Acme Company retains the $360,000 it reserved in a worst case scenario. Acme Company realizes a $360,000 savings by going Self Funded versus Fully insured.
ClaimsExperience—Immediate Realization of Hard Dollar Savings
Under a fully insured program, f an employer’s experience is “better than expected,” the insurance company gains financially and makes an unexpected profit. The insurance carrier does not refund the excess profit to the employer. Even if an employer has good claims experience, the insurance company will still pass on a renewal based upon the insurance companies’ pool of thousands of groups. Employers are not truly rated based upon the employer’s claims experience and can be treated unfairly. With Self Funding your renewals are based on “YOUR” company’s claims experience, and it is not based on thousands of other companies that have no relation to your company or industry. You, the Employer, not the insurance company enjoy the advantage of favorable claims experience. You, the Employer, keep the savings, not the fully insured carrier.
How does medical Tourism fit into Self Funding?
Most Self Funded plans have reinsurance, which is a form of insurance that protects employers from catastrophic losses. So, the employer funds the base of the plan, with a reinsurer taking care of catastrophic losses. One form of this insurance is Specific Stop Loss Reinsurance. Specific Stop Loss – Reinsurance (also known as Individual Stop Loss or Specific Deductible) protects a self- funded employer from large claims from any one individual or dependent. If any one individual’s claims hits the Specific Deductible/ Individual Stop Loss Level (a specific dollar amount) the employer’s liability ceases and the reinsurance carrier takes on the liability and the claims. The Stop Loss Carrier will then reimburse the employer for all claims in excess of the specific deductible for the rest of the plan year. The Specific Stop Loss Deductible is determined by the following demographics of the employer: number of employees, age, sex, claims experience, etc..
Specific Deductibles can range from $20,000, and upto $250,000 for much larger groups. Let’s take a $100,000 specific deductible as an option. The employer must pay the first $99,999.99 on any person within the health plan. Once that person’s claims hit $100,000 the reinsurer pays the remaining claims for that person for the year. So, if a member needs a heart procedure that costs $100,000, the employer is guaranteed to pay $100,000 because the reinsurer pays only after claims hit $100,000. This means the employer is guaranteed for a heart procedure to pay the $99,999.99 in a self funded health care plan. If the employer can implement medical tourism and convince an employee to go overseas for healthcare, and the employee goes to Asia for example, then the cost for the surgery may only be $9,000. That means the employer just saved $91,000 “hard” cash. By the U.S. employer utilizing Medical Tourism they just cut their health care expenses for major surgeries by up to 90%!
A creative method some Third Party Administrators and employers are doing is creating incentives for employees. These incentives could be from paying for the member and a loved one’s airfare to the foreign country, plus picking up all expenses, hotel, food, etc. Some companies are even offering cash incentives on top of an all expense paid trip/ vacation, allowing employees to take a vacation they otherwise couldn’t afford and still have cash in their pocket. For a $100,000 surgery in America that would cost $9,000 in the U.S., if the employer waived a $2,000 deductible, paid for airfare for the member and a loved one, plus all expenses and a $5,000 cash incentive, the employer could walk away spending less than $20,000 for the surgery. Which is still a $80,000 savings (80%) over getting the surgery done in the United States. Don’t forget, with self funding, this is the employer’s money that’s being saved, not the insurance carrier..
The most important part for the Third Party Administrator and Employer is partnering with a quality hospital and ensuring the employee or participant has an amazing health care experience. Next month we will address how employers should approach medical tourism with their employees and how it can change the corporate culture.
Jonathan Edelheit is President of the Medical Tourism Association with a long history in the healthcare industry, providing third party administra- tion services for fully insured, self-funded and mini-medical plans to large employers groups. Medical Tourism is the only real solution in health care today where employers are guaranteed to save money.