1. Basics of Small Group Level Funded Plans
Iowa Association of Health Underwriters
Continuing Education – 1 Credit Hour
June 7, 2018
11419s0115
Edt

2. Small Group Level Funded Plans Key Questions
Why level funding for small employers now?
What is the market for small group ”level funded” plans
Underwriting “level funded” health risks
What is the objective of level funding?
How does “trend” affect “level funding”?
What is the risk structure of level funding?
Explaining “level funded” concepts to employers

3. Group Health Insurance Market – USA
Source
BLS – 2012
Government & Military not included
FIRMS
99,000
1,100,000
4,500,000
5,699,000
FTES
65%
24%
11%
100%
Large Group
>100
72.8M FTES
Small Group
>10 <100
26.8M FTEs
Baby Groups
<10
12.3M FTEs
TOTAL
111.9M FTEs

4. “Employee Only” Rate Illustration
Why Level Funding Now?
“Employee Only” Rate Illustration
$700
Fully Insured
$600
ObamaCare
Rate Shocks
“Employee Only” Rate
Self Funded Costs
$500
$400
Self Funded Costs
After refunds
$300
2014
2015
2016
2017
2018
2019
Year
This sample chart illustration is provided for educational purposes only. Actual results may vary and are not indicative of future performance.
Allied National, Inc. l W. 107th St. Suite 100 l Overland Park, KS l l l l twitter.com/alliednational
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5. What is Self Funding? Employer is the risk bearer! Fully Insured
Risk bearer is the insurance company
All RISK transfers to insurance company
Self Funded
Employer is the risk bearer!
Claims paid from employers claims fund
Employer hires/assigns a claims administrator to pay claims
Employer purchases Stop Loss Insurance to limit risk 5

6. What is the difference between self funding and level funding?
the employers ultimate costs are variable and unknown and based entirely on the cost of claims
typical for employers with 100 FTES or more
Level Funding
the employers ultimate costs are capped and limited to a specified dollar amount
available for groups as small as 2 lives 6

7. Stop Loss Insurance Employer’s risk is contained Specific Stop Loss
Claims paid by carrier when an individual’s claims exceed a set dollar amount
Aggregate Stop Loss
Claims paid by carrier when the group’s total claims exceed a set dollar amount 7

8. Level Funded Group Health Plans are subject to “ERISA” regulation.
What is ERISA?
Employee Retirement Income Security Act 1974

9. ERISA enables level funding
ERISA pre-empts the state’s ability to:
Mandate health insurance contract terms and benefits
Impose premium taxes
Impose underwriting constraints and mandated premiums
Limit employee benefit plan options
State insurance departments regulate stop loss carriers not level funded plans 9

10. Sample Small Group Level Funded Plan

11. Why Level Funding for small employers now?
Long Term – it’s the most cost effective way to finance a group health plan
Reduces insurance company profit
Eliminates state insurance premium taxes
Eliminates state benefit mandates
Allows employer to take control of group benefit plan
Money not spent on claims belongs to the employer – not the insurance company
Avoids many negative impacts of ACA 11

12. Small Group Level Funded Features
Accommodation
When claims exceed money in claim fund – insurer loans employer money
Reporting
Detailed monthly reporting showing claim fund activity
Plan Year and Claims Run Out
12/15, 12/18,12/21, 12/60 plan options
Claims incurred during plan year are payable for X months past end of plan year. At end of the run-out – all remaining claims funds distributed according to plan provisions!
At end of the run-out – remaining claims funds distributed according to plan provisions! 12

13. What is “trend?
“Trend” is the actual annual rate of increase of the cost of private healthcare in the United States

14. How does “trend” affect level funded plans?
Levle funded health plans are buying healthcare services that are increasing at 8-12% per year

15. Actual level funded plan “trend” factors?
Allied National 9.9%
Cigna %
Starmark %
UHC %

16. Trend + Demographic Yearly Impact (11%+2%)
Year EE Rate
$530
$599
$677
$765
$864

17. Trend + Demographic Yearly Impact (11%+2%)
Year Family Rate
$1,150
$1,300
$1,468
$1,659
$1,875

19. 2015 Healthcare Spending $3,000,000,000,000 (Trillion)
$9,788 per person
17.5% of GDP
Projected Annual Growth – 5.7%

20. underwriting profitability
Underwriting Level Funded Plans
Since the primary objective of small group self-funded plans is to offer products that serve their agents and employers over the long-term, their market sustainability will be determined by their
underwriting profitability
of their overall pool of business. This requires a disciplined approach to underwriting every risk, both as a new business and at renewal. Good risks receive favorable rates, poor risks are declined; the best risks will have an opportunity to participate in the underwriting profits on their account. 20

21. Two Medical Underwriting Philosophies for Small Group Level Funded Plans
TODAY
Traditional Underwriting
Past history
Price based on past health history,
industry trends, and carrier loads
Financial Underwriting
Future costs
Price based on future health care costs

22. Sources for Small Group Level Funded Health Plans
Carriers – Starmark, UHC, Cigna, National General, Humana, Aetna
TPAs – Allied National, Key Benefits, ATA
MGU’s - Montgomery

23. Underwriting “Submission”
Account submitted for a full underwriting review
Required underwriting documents
(will vary by carrier, TPA or MGU)
Accurately completed enrollment forms
Claims history for cases over 100 lives
Employer statement
All applicable waivers executed
Current wage and tax statement
Current or renewal rates
Requested benefit plan design 23

24. Variables that will impact level funded costs
Demographics
Plan Design
Medical Services Consumption
Health Conditions
Rx Consumption

25. Demographics Age make up Group size Gender distribution
Number of dependents
Industry
Participation
SIC code
Multi-location – Zip Codes

26. Plan Design Deductibles and co-pays Dual options Networks
Participation requirements
Health saving account (HSA)
Health Reimbursement Accounts (HRA)

27. Health conditions Height and weight Rx utilization Critical illness
Chronic conditions
Medical services consumption rate

28. Rating Challenges Any single critical illness Cancer Kidney failure
Transplants
Abnormal pregnancy
Hepatitis C
High Rx utilization
Co-morbidity issues
Diabetes and high blood pressure
Diabetes and obesity
High cholesterol and heart disease
Pending Surgery

29. The secret to successful “level funded” underwritten plans is
“communications”
The only problem with “communications” is the illusion that it has actually taken place….
George Bernard Shaw

30. Set expectations correctly:
The secret to selling underwritten plans….
“Preparation, communications,
competence & commitment”
Set expectations correctly:
The product
The process
The politics
The commitment
The requirements
The risk
The reward
The execution

31. Level Funded vs Fully Insured
55 lives (for illustrative purposes only)
Year
Funding Advantage
ACA Compliant
Fully Insured ACA Compliant
Difference
2015
$305,412 $0
2016
$335,953
$427,577
($91,624)
2017
$369,549
$534,471
($164,922)
2018
$406,503
$598,608
($192,104)
2019
$447,154
$670,440
($223,287)
Total
$1,864,571
$2,536,508
($671,937)
Claim Refunds (15%)
($279,686)
Net Cost
$1,584,885
$951,623
Increased Cost
60.04%

32. A more complex transaction
Requirements
Fully Insured
Pre ACA
Level Funded
Post ACA
Benefit Plan Designs X
Marketplace Options – Carriers, Networks
Cost Comparisons
Commissions
ACA Compliance
Self Funding
Medical Underwriting
Employer Cost Allocation
HIPAA Compliance
ERISA Compliance
Employment Law
Claims Analysis
Long Term Strategic Planning
Fees
Time
40 Hours per account/Year
70 Hours per account/Year

33. Level Funding Operational Challenges
Post ACA
Higher Technical Skill Required
Higher Client Services Needs
Greater product complexity
Larger client service time commitment
More staff support capacity
Higher agency operating costs 33

34. Selling Level Funding - Conclusion
Sell yourself as the healthcare advisor
Every case will have it’s own unique rate every year
Inform and educate and set expectations correctly
Not every employer will qualify – keep other options open
Sell the concept and the long term value not the price
Sell engagement and commitment to manage the risk
Sell your professionalism, expertise and support structure
Allow more time for placement and service
Be sure your compensation is appropriate 34

35. sales@alliednational.com twitter.com/alliednational
Allied National, Inc W. 107th St. #100 Overland Park, KS 66207
Thank you!
Allied Sales Support
twitter.com/alliednational
Fax: 35 35