Alternative Self Funding 101
Even before Health Care Reform was passed into law, alternative self funding based insurance is one of the most popular ways for employers to provide their employees with group health insurance coverage. If your business has yet to offer a plan or if you’re looking for a way to provide better policies with less money, alternative funding could be the option you’re looking for.
With alternative funding insurance plans, your health plan premium payments for your policy are no longer pooled together with others. A portion of your monthly premium payment is set aside into an account set up specifically for your policy. Your employees file claims, and the claims are paid for out of your specialized fund. Since a portion of your premium is being used to pay for only your health plans claims you are no longer paying premiums that help pay for another employers health plans claims.
The main reason that alternative funding is more affordable is the reduced risk to insurance providers. This means that your business is responsible for the health expenses your employees incur instead of the insurance provider being held liable. To offset your own risk, stop loss insurance is used. This allows a business to reduce its overall costs and still provide its employees with an insurance policy that they can count on.
Specific Stop Loss Policy Basics
With specific, individual claims-based policies, your alternative funding insurance policy begins each year with you choosing a specific deductible for each employee. Then, over the course of the year, if their medical claims exceed the deductible threshold you set in your alternative funding policy plan, your stop loss policy kicks in and picks up all claims above that threshold amount.
Aggregate Stop Loss Policy Basics
Another situation occurs when your entire group exceeds the limits of the fund for your alternative funding policy. For example, your claims are all pulled directly from the claims fund you pay into. But if the total claims for the plan year end up going beyond the aggregate deductible, the stop loss policy will cover the claim costs for the rest of the year.
What About Unused Funds?
One key thing to keep in mind with alternative funding is that the funds left over can actually grow over time. With an ERISA based alternative funding program, you may end up receiving funds back if your employees don’t use more than what is allotted for them.
Each policy is structured differently, but you’ll either be able to rollover those funds into the claims account for next year or get a refund for the excess amount, giving you a quick cash windfall near the end of the year.
No matter your ultimate goal, budget, or plan design, alternative funding could be the key to getting the right insurance policy for your business. Contact us today to learn more.