Advantages:

  • Cost savings and improved cash-flow
  • Transfer risk through prudent purchase of stop-loss
  • Reduction in state premium taxes (in most states) and carrier profit margin
  • Greater flexibility in plan design and elimination of most or all state mandates
  • Greater potential for employee engagement
  • Ability to evaluate each component of the plan separately
  • Vastly increased knowledge of the plan, claims experience, and component costs (HIPAA protected).
  • Ability to install wellness, biometrics and other cost-containment initiatives to reduce claims costs on a direct basis
  • A greater ability to save money through the use of telemedicine
  • Greater ability to create special networks, Centers of Excellence, and medical tourism (perhaps even within the immediate area)
  • Ability to use Reference Based Pricing and Value Based Insurance Design to reduce cost

Disadvantages:

  • While historical experience and actuarial projections can increase overall predictability, monthly cash obligations to fund claims will fluctuate.
  • More employer engagement required to manage plan and optimize effectiveness
  • Requires long-term commitment
  • Must create and hold reserves for year end run out or plan termination
  • IRC ยง105(h) discrimination testing applies
  • Wellness and biometrics (if instituted) might cause employee morale issues if not handled correctly
  • More technical expertise required on the part of the adviser/consultant
  • Alternative fully insured and stop-loss markets might not be available later if there is severely adverse claims experience
  • Somewhat increased reporting requirements.
  • Stop-loss coverage can be more price sensitive to on-going claims than a fully insured plan.
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