Commercial self-funding is an alternative insurance strategy specifically catered to groups with a majority population of low healthcare utilizers. As an employer, you directly fund your employees’ medical claims costs but in cases where an employee/group of employees’ claims costs escalate beyond the allocated claims funds, stop loss coverage is paid for as protection.
Self-Funded Premium- Know the 4 Parts
- Administrative Fee- The amount paid for administration services such as Access to a Provider Network, Customer Service (Part of our work included), Claims and Plan Administrative Work, Banking.
- Stop Loss Coverage- Funds used to pay claims above customer liability claims. Basically, if your claims costs exceed your estimated liability, you buy additional insurance against that. This is known as Stop Loss Coverage or Stop Loss Insurance.
- Claims Run Out- Funding a reserve just in-case the plan terminates, and high claims costs incur beyond the termination date.
- Claims Funding- Covering expected medical claims throughout the year. If the amount paid in claims funding is HIGHER than the actual claims of the group, money is given back. If claims funding is LOWER than the actual claims of the group, Stop Loss Coverage kicks-in.
- Not being subject to state mandates, i.e.- less regulation and underwriting protection which means lower premiums
- Monthly costs reflecting expected claims
- Opportunity to get money back if- actual claims are less than estimated claims costs per month
- Strict Medical Underwriting
- Medical Claims Reports are required
- Rates are subject to fluctuate anytime as group size changes
What You Need to Know
Making payment- ACH Debit is required. Checks are not accepted, even for first month payment
Eligibility Rules- Only Full-time Employees are eligible for coverage
Who is a full-time employee?- Works 30 hours a week for 120 days in the calendar year a) employ a minimum of 5 full-time employees b) Follow the Full-time equivalent calculation (FTE) and meet 5-50 eligibility rule. Also must have 5+ full-time workers for 50% of the calendar year.
FTE Calculation Inclusion-
- All full-time employees of a group if the business is affiliated with another employer, under common ownership or part of a controlled group
- Part-time employees
- Union employees
- Partners, Shareholders or Owners without Common Law Employee Status
- Family Members or Dependents
- Seasonal Workers- Worked Full-time LESS than 120 days per year
- Independent Contractors who are not common law employees- 1099 workers
1) Full-time employees that work at least 30 hours per week in any month are counted as one full-time employee. This amount is added to the number of part-time employees.
2) Part-time employees are counted by taking the hours worked by all part-time employees in a week and dividing that amount by 30.
3) Seasonal employees working up to 120 days in a year are not counted in the calculation.
Example 1: 15 employees working 30 hours or more= 15
5 employees working 20 hours per week 3 (5x20 = 100÷30 = 3.33 = 3
15+3= 18 Average number of FTE
- At least 50% of the premium
- At least 50% including valid waivers unless the plan is Non-Contributory (meaning employer covers premiums 100%). In that case, Participation would be 100% excluding valid waivers.
Two or More Affiliated Associated Multiple Companies Common Ownership-
- All persons treated as a single employer under subsection (b), (c), (m), or (o) of Section 414 of the Internal Revenue Code of 1986 shall be treated as one employer
- One owner has controlling interests of all businesses to be included OR the owner files (or is eligible to file) an Affiliations Schedule, IRS form 851, a combined tax return for all companies to be included
- Copy of latest tax return
- All businesses filed under one combined tax return will be considered a single self-funded employer, unless in the case of a carve-out.
- 50 or fewer employees in the combined employer businesses
- Every 2nd of the month.