Hello everybody. I’m Pete Doran, and this is Spencer Smith. We’re from ParetoHealth, and today we’re going to talk about the self-funded components.
Self funding, what does that mean in contract with fully insured and we’ll get into some benefits and things like that.
Well the same elements that an employer purchases on the fully insured side of the business exist on the self funded side. They’re going to make the same basic decisions. What network works best for my employees?
That’s the fundamental decision every employer must make. And then they’re making secondary decisions such as plan designs?
What type of plans I wanna offer my employees? What type of premiums do I want to charge there? Both on the medical side and on the pharmacy side, we talk about how we can carve out pharmacy. Whether employers realize it or not, they’re going to purchase reinsurance on the full insured side.
It looks a lot and feels like a pulling point. In fact, many of the full insurance renewals are listed pulling point on that renewal. When you’re self funded on the other side of the business, you’re going to buy what’s called a reinsurance or a stop loss policy.
Yeah.
Stop loss policy is going to limit your top end risk. We’re gonna talk about that here in a minute. But, again, the same components that you have on the full industry side exist on the self funding side.
You just get a chance to see them.
Right. You’re gonna select the network. You’re also going to hire what’s called a third party administrator or a TPA.
That TPA is essentially the the cardiovascular system, right, we mentioned before, or the heart behind your self funded plan.
They’re going to take all those claims when your employees go to the doctor. They’re going to put that network discount on top of that claim, accessibly adjudicate that claim.
And they’re going to submit that bill to employers, you know, both on from a fixed cost side and from a claim side of things.
Think they’re the basic components, right? I wanna reiterate this because those are important to understand because they’re all built into your fully insured plan today, but when you’re self funded, you have an opportunity to actually see these pieces and select the vendors that you partner with. So the TPA, let’s just spend another moment on that third party administrator or TPA who mentioned whether the cardiovascular system or the heart or the quarterback, whatever term you want to use, their role is to really control kind of everything within the plan.
So what are some of things they’re doing — adjudicating medical claims, they’re controlling cash flows right withdrawing money from paying premium or paying commissions out.
What are some other sort of key things that a TPA will do for an employer help to them save money and control costs and things like that?
Well I think the fundamental thing that we talked about the difference between fully insured and self funding is all that data inside the plan that now an employer has. A CFO and HR department now has the ability to see exactly how we’re spending our self funded money? Who’s going to the doctor? What type of diagnosis exists?
Are there large claims? Do we have the ability to work with the TPA to manage some of those large claims when before fully insured we had ability to do that.
Yeah, no insight, no visibility into what’s driving your claims. A good TPA, obviously, you mentioned access to a network is gonna be important, how they adjudicate those claims. The PBM, though, was another sort of crucial pillar within a self funded plan. What is a PBM, a pharmacy benefit manager? What do they do?
One of the frustrating things about and one of the, you know, the continued drivers and costs these days are the pharmacy claims.
We know this. We can’t turn on the TV these days. You can’t watch your favorite sports team without seeing a commercial on pharmacy, right? The cost of drugs is going up.
In many cases now, employers that self fund or any employer, for example, their costs on pharmacy are 30 or 40% of their total spend now.
I’ve heard you know suggestions that maybe that might make up 50% of plan spend in the very near future.
That’s correct and that’s a dramatic increase from what it was even five years ago. Okay we often see specialty drugs costing anywhere between $10,000 to sometimes $50,000 a month and sometimes potentially more with gene therapy.
So we got our TPA, does the medical claims, right?
We got our PBM that does the pharmacy claims and the third component if we’re thinking like putting together a diet that has macros of protein, fat, and carbohydrates, look at the third macro of a self funded plan, that’s your stop loss insurance. That is where I think I want to introduce some some verbiage here because some people might not be aware.
Partially self funded is technically what most small to midsize employers are. The partially component is the fact that they’re buying stop loss insurance which is limiting some of their liabilities. So why don’t you explain what stop loss insurance is broadly?
Yeah, sure. So a stop loss insurance is a reimbursable contract between the reinsurance carrier, the stop loss carrier, and the employer. And this is going to limit their top end risk as it pertains to large claims.
Okay. So the employer will select a what’s called a specific deductible. Okay? The employer will fund up to that specific deductible.
And once a claim reaches that limitation, the stop loss carrier will kick in and essentially reimburse the plan, reimburse the employer group for the amount of that claim. Right? So essentially, in an example, a $150,000 claim with an employer that has a $50,000 specific deductible, that employer will be reimbursed a $100,000 of that claim or essentially a $100,000 over that $50,000
That’s that’s a key thing to stress. Right? I mentioned that word partially self funded earlier because most people when they hear self funded, an employer might have a knee jerk reaction. I’m exposed. Right? I have all this liability. What am I going to do to protect myself?
The introduction of stop loss insurance into that equation will now limit their liability, like, a per person basis as you just described with spec or an overall basis which you described with agg, and we’re going to go into that in just a moment.
Just a quick comment on that. So all employers are gonna pay a different stop loss premium. Employers are located in different locations.
They are employing different networks with different discounts. They do different things. Obviously, a heavy manufacturer will pay more in risk premium than, let’s say, an IT company.
So not all premiums are the same, and not all risk tolerance is the same for employers.
Absolutely. Yeah. Great point.
