With self-funding, the employer pays
for elements of a plan separately. Fixed costs include
administrative fees, utilization management fees, network
access charges, reinsurance premiums, customer service
costs, and commissions. Actual claims, or medical bills,
are variable expenses and these make up the greatest
percentage of the total cost of a plan. While the fixed
costs remain constant each month, counties may pay more
or less depending upon the claims experience.
If a 12/15 contract is not purchased, terminal liability
coverage may be purchased to cover ‘run-out’
claims. Negotiate contract terms in advance to avoid
unforeseen costs.
One other key point about reinsurance
is the reimbursement policy. Carriers will typically
only reimburse at the end of the contract period,
which means that the county may have to cover all
the claims until the end of the year. Many counties
do not have adequate reserves to fund these claims,
which can be hundreds of thousands of dollars. To
avoid this financial hardship you can request 'advance
funding,' which may provide you with more frequent
reimbursements, but it may cost more.
Administration
A third party administrator
(TPA) is usually hired to process and pay all the
claims. Because the TPA will be writing checks on
the county’s behalf, state law (Chap. 172, Local
Government Code) requires counties to evaluate the
financial solvency of their TPA. Check that your TPA
is licensed with the Texas Department of Insurance.
If a TPA cannot furnish audited, up-to-date financial
statements, they are not legally eligible to do business
with local government.
It is also important to understand
how claims are paid. Here are some details to ask
about up-front: Do the doctors file the claims, or
will your employees have to pay for everything out
of pocket and then wait for reimbursement? Are the
claims filed electronically for faster and more accurate
payment? How long, on average, does it take to get
a claim paid? Where are claims paid?
If problems with claims ever do
arise, it can be difficult to resolve them with out-of-state
companies. You can expect to pay a flat fee per person
for administration of your plan. Carefully review
your contracts for any hidden fees such as start-up
costs, cancellation fees, network charges, printing
costs, network directories or drug card fees.
Network
Look for a managed care network that provides a broad
network of doctors, hospitals and health care facilities.
But keep in mind a good network goes beyond a list
of doctors. Credentialing procedures ensure that your
employees receive high quality care, and that patients
have adequate access to providers without long delays.
Most importantly, a well run network will save your
county money by offering health care services at a
substantial discount, which may range from 0 –
50% or more, so shop carefully.
You can expect to pay a fee for
access to a network. Beware of networks that charge
you a ‘percent of savings.’ Administrators
or networks can artificially inflate the savings amount
and then make you pay 25 percent or more of those
‘savings.’ Some TPAs have even ‘double-dipped’
counties, charging both a per head access fee and
a percent of savings. These hidden costs can really
drive up health plan expenses.
Claims Funding
With self-funded health plans, the county should be
sure to determine the maximum claims liability and
then fully fund that amount. Even though your actual
claims will vary from month to month, fund your claims
account to the maximum liability. Your claims may
turn out to be less than that amount; in which case
you will end up with reserves at the end of the year.
But if you do not fully fund your liability, your
plan can get into real trouble and your taxpayers
will have to come up with the money.
In order to protect the county’s
taxpayers, have an actuary determine your maximum
liability and reserve requirements. A TPA or reinsurance
company that is hungry for business may have reason
to underestimate the liability to make the rates look
more attractive.
Plan Design
Make sure that you completely understand the plan
design. Look for deductibles and copays that are right
for your employees. You want to make health care accessible,
without encouraging frivolous use of benefits.
Legal Obligations and Restrictions
Texas law (Chap. 157 and 172, Local Gov. Code) provides
for the self-funding of health care benefits for all
local government entities. Counties also operate under
legal restrictions that do not apply to other local
government entities. There are minimum size requirements
and rules that mandate certain types of oversight
of the plan.
Minimum Size Requirement.
Per state law, counties are subject to minimum size
requirements in order to self-fund health care benefits.
A county with a population less than 500,000 may self-fund
its health benefits if claims and expenses are actuarially
certified to exceed $300,000 per year. Or, a county
may enter into an interlocal agreement with a risk
pool whose claims and expenses are actuarially certified
to exceed $1,000,000. (172.012)
Alternately, a county which self-insures
without joining other political subdivisions in a
combined risk pool must obtain reinsurance or stoploss
coverage of potential liability that is in excess
of 125% of projected paid losses.
Trustees. Any self-funded risk pool must have
trustees. Each trustee must have 16 hours of professional
instruction in four separate areas within 180 days
of selection. The training must cover Law, Principles
of Self-Insurance, Financial Statements, and Fiduciary
Duties of Trustees. (172.007)
The law does not state how many
trustees are required. It is generally a good idea
to appoint no more than two members of your Commissioners
Court as trustees because of the possible application
of the Open Meetings Act. Remember that any time three
or more court members are gathered and discussing
county business, you must post this meeting 72 hours
in advance, in the event the Act may apply to such
a board of trustees.
Administrative Oversight.
Trustees of a self-funded plan must evaluate the background,
experience, financial qualifications and solvency
of their TPA (Third Party Administrator). The plan
must be audited annually by an independent CPA. (172.010)
This separate audit of the plan is in addition to
the annual county audit. Furthermore, a copy of the
audit must be filed with the Texas Department of Insurance.
Insolvency. From time to
time, a self-funded plan or risk pool will have financial
difficulties. According to state law, trustees shall
declare insolvency if claims are not paid 60 days
after verification. The plan, or pool, shall cease
operation on the date of insolvency and a receiver
is appointed to distribute assets and liabilities.
If liabilities remain after receivership, claims revert
to the county taxpayers for payment within 30 days.
(172.011)
Penalties. Chapter 172 of
the Local Government Code does not define any criminal
or civil penalties for non-compliance. However, if
a claim dispute ended up as a lawsuit, the plaintiff’s
attorney would find out that the self-insurance plan
was not in compliance with the statute. The potential
liability of a situation such as this for the county
and the public officials administering the plan is
simply not known at this time.
Consult an attorney who can advise
you on recent health care legislation. You cannot
rely on the insurance company or agent to be aware
of the special laws that apply to local government.
There are many new requirements
for counties, and it is important that you are aware
of your county’s obligations. Make sure a qualified
attorney reviews all contracts for compliance with
Chapter 172 of the Local Government Code.
For more
information call the Group Health Department at the
Texas Association of Counties at 1-800-456-5974.
