Employers, consider these alternative funding approaches for employee health benefits.
In the past, alternative funding solutions for health benefits were primarily available to large corporations. However, shifts in the in the group health insurance market has completely changed the landscape. Today, smaller and mid-sized businesses can also benefit from options aside from being fully self-funded. Here are some of the alternative funding options for employee health benefits that employers should consider.
Captives
While captives have long been popular in the workers compensation insurance arena, they are now starting to be utilized in employee benefits. Under a captive agreement, an administrator will combine several employers who enter a risk-sharing agreement. This group moves into a self-insuring situation with an administrator controlling the captive and mitigating each employers’ risk. A typical captive funding agreement has four parts as illustrated by this example:
- Individual employers are responsible for covering the first $25,000 towards claims made by individual plan participants.
- Risk is shared between all employers in the pool, $25,000 to $250,000.
- The captive provides individual stop-loss coverage for any claims that exceed $250,000.
- An additional form of coverage known as aggregate stop-loss coverage protects each employer for the total claims made by the company. This coverage usually ranges from 115% to 125% of the annual claims costs.
Captives are a good option for small to mid-sized employers (up to 200 employees) who need to mitigate their insurance risk. Keep in mind that this option might not be ideal for all businesses. If you have a strong employee wellness program in place, then you could end up subsidizing other employers who do not make wellness a priority.
Private Exchanges
Under a private exchange, employers select health plans and services and offer their employees the opportunity to choose which options they want to secure. Employers allocate funds to allow their staff to purchase their benefits, and give them the option to personally contribute additional money if they want to purchase more coverage than their allocated funds afford. Usually, this form of defined contribution model is supported by a digital, decision-making platform. Under this form of alternative funding, employees need to be educated about their plan options. This is why offering your staff a smart decision-making support tool is so important. Without some form of support, employees may fail to make informed decisions which will lead to insufficient coverage and dissatisfaction.
These are some of the alternative funding options for employee health benefits that employers should consider. Do you have further questions about your employee benefits package? If so, then contact the experts at CIA Insurance and Risk Management. We are ready to assist you with all your employee benefits needs today.
Post written by Janelle Morck, Vice President | Employee Benefits Risk Management (ERM)
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