Health reform holds quirks for self funded plans

November 12, 2010
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Companies that self-insure for health coverage are weighing health care reform's impact on their benefits arrangements.

"One the things that self-funded plan sponsors will be needing to do — and are probably in better shape to do — is to measure what the impact of these changes is on their cost over the next couple of years," said Greg Rhodes, principal at consulting firm Mercer's Grand Rapids location. "Being able to really closely monitor that, to determine the impact on how that is going to affect their budgeting going forward."

Some 59 percent of Americans with employer-provided health insurance belong to self-insured plans, according to the Kaiser Family Foundation health care website. An antitrust lawsuit recently filed by the Department of Justice and the state of Michigan indicated that about half of Blue Cross Blue Shield of Michigan's business is providing services for self-insured firms. Oversight for these plans comes from the U.S. Department of Labor, under the federal Employee Retirement Income Security Act, instead of the state insurance commissioner.

"The requirements are the same, but there's a couple of ways there is a different impact on self-funded employers," said Mary Bauman, a lawyer at Miller Johnson.

Two examples are compliance and appeals processing.

Even though many self-insured companies, which generally have upward of 100 employees, plan to rely on their third-party administrators to take care of compliance, the companies still bear responsibility for making sure they meet the new rules, said Bauman.

 "If you are fully insured, you are assuming the carriers are going to be doing that for you, or greatly helping you. If you are self-funded, your TPA may assist you, but I don't think that should be assumed," she cautioned.

Compliance is an immediate issue as companies scramble to make sure they pass muster with the crush of policy renewals that come with the start of the new year. After making a decision on whether to grandfather plans, new provisions must be implemented and new notifications provided to employees.

"I think that there are additional regulatory aspects to the bill for self-insured organizations, because that burden, the ERISA implications, come into play for the self-funded plans," said Sharon Cook, global human resources vice president at Amway Corp., which has 4,000 employees in West Michigan.

"If we were insured, much of the burden associated with the compliance would fall on the insurance carrier on our behalf. We're more focused initially now on just compliance with those areas of reform that are beginning for us in 2011 and 2012," Cook said.

Under the Patient Protection and Affordable Care Act, self-funded plans must provide an external appeals process in addition to an internal process. Some already have that in place, but those that don't need to find a way to offer it, Bauman said. If an employee exhausts the internal review, a self-funded plan would need to rely on its third-party administrator for the services, she said.

"If you are fully insured, you can piggyback on the state's external review process," Bauman said. "If a self-funded ERISA plan must arrange for external review procedure, the TPA should help you do that."

OFIR spokesman Jason Moon said that the health care reform law gives the state until July 1 to decide whether to open its appeals process to self-funded plans. If the state allows it, each self-funded plan would have to decide whether to use the OFIR process or another external review procedure.

Norbert Kugele, a lawyer with Warner Norcross & Judd, said external reviews overturn internal decisions about 47 percent of the time.

"Independent review organizations already exist. They have been out there doing external reviews on the insured side for a while. Self-insured employers will have to start using independent review organization as well. I expect the TPA will probably take care of this."

Companies appreciate being in charge of their own health plans, Bauman said, deciding what coverage to provide and having more control over costs.

But as new insurance requirements are worked into state regulations for fully insured plans, they spill over into the self-funded area, as well, Cook pointed out.

"There has been somewhat of an erosion as to the advantages associated with self-funding," Cook said. At Holland auto supplier Gentex Inc., Vice President of Human Resources Bruce Los said the company has worked closely with providers and employees to keep growth in costs in the low single digits.

For example, Gentex and Spartan Stores Inc. negotiated pharmacy discounts, he said.

Most of the of the cost increase for 2011 can be attributed to health care reform measures, he said, including removing the lifetime limit cap covering young adults.

"We have a very strong focus on prevention," Los said, noting that the Gentex plan provided first-dollar preventive care coverage even before it was part of health care reform. "The people that make behavioral choices that cost more for health care end up paying more."

Self-funded and fully insured firms alike have had to make decisions about whether to retain grandfathered status and whether to offer health insurance at all once the insurance exchanges begin in 2014.

"I think the first quarter of next year, for a lot of large employers and mid-size employers, will be to look at putting a strategy in place for the next few years," said E.J. Pearson, a principal at Mercer in Grand Rapids.

At Gentex, the first reaction was to maintain the status quo health plan. "The more we dug into it, we decided that to maintain our grandfathered status was actually too restrictive and doesn't allow us to manage our plan better, so we are going to give it up," Los said.

Whether to maintain the offer of health insurance as insurance exchanges become operational in 2014 is another big decision that faces large and medium-sized employers, Bauman said. They must weigh costs and tax benefits against fines and the loss of a recruiting tool.

"There certainly is a more strategic decision to be made and reviewed, and this is one of the analyses that we are going forward with, is actually looking at this self-funding versus the insurance," Cook added.

Percentage of covered workers in partially or completely self-funded plans, by firm size

Number of Workers

       

1999

    

2010

3-199

13%

16%

200-999

51%

58%

1,000-4,999

62%

80%

5,000 or More

62%

93%

All Firms

44%

59%

Source: Kaiser Family Foundation and Health Research & Educational Trust

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