The first thing brokers need to do is make
sure their clients know that it would be
the client’s fiduciary responsibility if they
“It wouldn’t be the insurance
company’s plan, but it would be the
employer’s plan, and the employer has
to take responsibility
for it,” explains Ronald
and general manager
of Allegiance Benefit
Plan Management Inc.
in Missoula, Montana.
brokers should have a
with clients, “not a
year-to-year one-off transactional
them,” says Mike
and chief executive
of the Self-Insurance
Institute of America
Inc. in Simpsonville,
Brokers should know that the size
of the employer is not always the best
determinant, Ferguson says. While
the rule of thumb is that the bigger the
employer, the more likely they are to be a
viable candidate for self-insurance, that’s
not always the case if they do not have
enough cash flow to pay claims and wait
for reimbursement from stop-loss carriers.
“Sometimes a large company is just
barely getting by and does not have a
strong cash position, whereas sometimes
a small law firm or accounting firm is cash
rich,” he says.
Before working with clients, brokers
should take the time to educate
themselves about self-funding, Ferguson
says. The Self-Insurance Educational
THE BASICS self-funding special section:
Foundation recently launched a website, siefonline.org, which has sections for various
interested parties, including brokers, to learn about self-funding “on a very granular level.”
Andrew Cavenagh, founder and managing director of Pareto Captive Services LLC in
Philadelphia, says brokers should learn about their clients’ turnover rates and wage rates,
as health management programs and accompanying employee incentives to make self-
funding more successful would be very different for long-term, high-wage earners than it
would for low-paying workers who do not stay for long.
“Brokers also need to learn what tradeoffs the client is willing to make between costs
and the types of benefits they want to offer,” Cavenagh says. “Do they
value reduced costs over reduced volatility? Do they value ease of
administration over cost? Brokers need to put on their thinking cap and
develop the right strategy that is specific for that client.”
Brokers need to determine what the client can do or is willing to do
to control costs, and for Cavenagh’s firm, that means requiring its clients
to have wellness programs, which can vary widely depending on the
specific population and the culture of the company.
“For example, a college that employs tenured professors might take
a very holistic life approach to chronic disease management, as the
employees will be there for a long time,” he says. “Contrast this with a
fast-food company with short tenure. This employer might forgo efforts
on long-term disease management and instead focus on creating a
narrow network of providers to reduce the cost of procedures.”
Ken Gumbiner, executive vice president, sales, at IHC Risk Solutions
in Fort Wayne, Indiana, says brokers should review administrative
service options in their market.
Insurance carriers offer ASO as a turnkey solution, which in most
cases is packaged with the carrier’s stop-loss coverage, provider network
and prescription benefits management, as well as its in-house utilization
review management and large claim management.
“If the employer group is currently covered by a fully insured plan
with a carrier that offers ASO this can be a simpler, but perhaps not as cost-effective
transition,” Gumbiner says. “Some ASO carriers will allow the broker to place the stop-loss
with another commercial stop-loss carrier.”
Independent third-party administrators provide the same administration services as
insurance carriers but may offer a greater degree of flexibility, he says. One advantage of
using a TPA is if the employer becomes dissatisfied with a specific vendor’s services, the
employer can change it without disrupting the plan completely.
Some TPAs also offer “reference-based pricing” with no provider network, an option
not typically available from ASO carriers. Another advantage of using an independent TPA
is that employers can buy a stop-loss policy from a variety of stop-loss carriers.
CHOOSING THE RIGHT STOP-LOSS CARRIER
Brokers should work with third-party administrators to find the right stop-loss insurance
policy, Dewsnup says.
“Making sure the stop-loss policy covers everything the plan does is very important.”
Brokers should evaluate several stop-loss policies from different carriers, which have
different exclusions and terms, says Horace Garfield, vice president, medical stop loss
is just barely
getting by and
does not have
a strong cash
small law firm or
is cash rich.”