“Traditional” Self Funding (Specific & Aggregate)
This form of self funded insurance provides catastrophic claim protection against individual (specific) and group (aggregate) claims for the employer. The policy sets a specific deductible limit for claims for which the employer will be responsible, with amounts in excess of this amount reimbursed by the insurance carrier. Conversely, the policy also sets an aggregate limit for claims for which the employer will be responsible, with amounts in excess of this amount reimbursed by the insurance carrier.
With respect to funding, the employer is responsible for payment of carrier premium and administrative expenses via a monthly billing statement, and claims are generally funded by the employer as the administrator adjudicates them; i.e. “pay as you go”.
“Hybrid” Self Funding (Level Funded, Aggregate Only, Spaggregate)
The main difference between Traditional and Hybrid self funded programs is how the claims liability is funded. Whereas the Traditional method requires employers to “pay as you go”, potentially creating a cash flow problem, the Hybrid program includes the claim liability component as part of the monthly billing. This creates a more consistent monthly healthcare budget, and essentially the billing becomes a “list bill” like that of the fully insured programs. The main difference is that most all Hybrid programs include a refund component that enables the employer a return of unpaid claim dollars in the event their claims run well during the policy year.
Other Options - “Flex Funding”
Consider this a hybrid of the hybrid option. Built on specific & aggregate chassis, this program combines components of both hybrid and specific & aggregate funding. While maintaining the fully funded aspect of the hybrid platform, this program includes a true specific deductible instead of an underwriting corridor or pooling point. This provides protection against large claims. Additionally, you have the benefit of a typically lower fixed cost than the standard hybrid program. This provides a better opportunity for claim fund savings in the event of a good claims year.
Other Options - VEBA Trust
The VEBA Trust option is a self funded program, but the plan designs and premium rates are “canned” just as they are with fully insured carriers. The plans and rates and filed with each state, and the rates charged will be the same for all groups regardless of group size , location, etc., and only vary based on the plan(s) elected. Premiums are adjusted each January 1st for all groups regardless of original effective date. Underwriting is typically done via individual employee applications, and the underwriter will either accept or reject the employer as a whole based on application review. There is no refund component built in, and typically no employer reporting is available.