10 Terms You Need to Know in Self-Insured Health Plans

Confused by all the “insurance-speak” in your company health plan? Here’s a quick guide for phrases in benefit plans for self-insured employers.

Self-Insured: What Does It Mean?

1 Self-Insured: Also called self-funding. Employers choose this model of funding to pay for health claims from company assets and employee premiums. Self-insurance allows employers to pay only for actual claims, instead of the fixed premiums of fully-insured plans. A 2013 study by the Kaiser Family Foundation noted three of five covered employees are in self-insured health plans.[1]

2 ERISA: Employee Retirement Income Security Act of 1974, passed by Congress to establish federal regulations for self-funded benefit plans. Self-funded employers avoid fees such as the Health Insurance Provider Fee,[2] Risk Adjustment Fee[3] and Federally Facilitated Exchange User Fee. Self-funded employers also avoid certain state premium taxes.

3 SPD: Summary Plan Description that lists health plan terms and conditions, written for a particular employer or organization. The SPD defines the benefit coverage and exclusions. MedCost ensures that coverage and exclusions mirror the stop loss contract. If the stop loss contract does not mirror benefits offered, the employer may have to pay claims that were not covered by the stop loss carrier.

Fixed Vs. Variable Cost

4 Fixed Cost: Predetermined fees that are paid as part of a health plan, regardless of actual expenses. Fully-insured plans are 100% fixed cost, paid out in set premium rates to the carrier. Self-insured fixed costs range from 18%—21% of total plan costs for administrative fees and stop loss insurance.

5 Variable Cost: Also called soft dollars, which may translate into potential savings for a self-funded employer. Prudent employers deposit funds for the total estimated employee claims into a reserve account in the company’s name. These dedicated funds remain in the employer’s account for future medical expenses if not spent during a plan year. MedCost provides professional underwriting services to help employers ensure that they are adequately covered for both expected and unexpected claims.

6 Corridor: Also known as claims or risk corridor, or margin. Underwriters include this as a cushion to cover unexpected claims. Generally this amount is around 25% for self-funded plans and 20% for fully-insured plans. Expected claims plus risk corridor (for variable expenses) determine the maximum liability (or attachment point).

Stop Loss Insurance

7 Stop Loss Insurance: Coverage designed to protect self-funded employers from the risk of catastrophic claims beyond a predetermined liability. MedCost underwriters recommend policies with consistency between the stop loss policy and the employer’s SPD, to avoid any gaps in coverage when claims are submitted.[4]

8 Specific Stop Loss Deductible: The limit of liability under stop loss coverage on an individual employee covered under an employer’s heath care plan. The employer chooses this amount based on total group size and selected risk tolerance.