What is Alternate Funding?
Alternate funding plans are unique group health contracts offered to groups with 10-300 employees. Like self-insured plans, they allow companies to better manage their healthcare budget and increase cash flow. However what separate them apart from true self-insured plans is the premium are the same every month. So they look very similar to fully insured plans but have the make-up of a self-insured plan. The fixed monthly premium is composed of claims funding, stop-loss premium and administrative fees. The insurance carrier will take care of claims that go over the stop-loss limit. If annual claims total is less than the yearly funded amount, companies will receive a refund or credit towards the next year’s renewal.
What companies are best suited for Alternate Funding?
- Groups that want the familiar structure of a fully-insured plan, but like the risk sharing advantages of a self-insured plan
- Groups that are fully insured and are not comfortable with the unknowns of a community rates
- Group with healthy employees that feel they are paying too much for health insurance
Under Affordable Care Act risk pools are now defined to small or large groups. A small group is a company with 2-50 employees and a large group is 51+. Small group rates are considered community rates. This simply mean the insurance company has a pre-determined set rate based on age and location. Alternate funding is an option to get out of the community rates and create your own risk pool based on your own employee base. The key that every employer must realize when exploring alternate funding plans is they have to qualify medically for the policy. Any high risk employee can disqualify the group up front. Perhaps you qualify up front but inherit risk along the way from your employee base. The renewal may be too high so you’ll need to go back to the fully insured rates. The good news for small employers is they can jump back into the guaranteed community based risk pool at any time, no questions asked. Large employers are not as fortunate as they may have to go back through a fully insured rating system with an insurance carrier.