Expanded Role of MGU with Self-Funded Health Care Plans

By

Carlton Harker, FSA, MAAA

For www.self-fundhealth.com

Discussion

Endnotes

Discussion

For numerous reasons, the market share for TPA-administered self-funding has, in the past five years, been diminishing¹ Therefore, the following MGU-related modifications to help self-funding retain or enhance its market dominance are proposed:

1. The role of the MGU should be expanded in some or all of these ways:

a. An MGU signature or customized Plan should be offered to any/all buyers².

b. Access to such MGU Plan should be conditioned on all of the privileges/obligations of all of the parties/vendors being contractually in place by means of micro-managed agreements³.

c. Risk management concepts should be embraced consonant with the self-funded plan being a miniature insurance company⁴.

d. Access to the MGU Plan means (a) automatic access to competitive stop-loss, (b) better networks than are traditionally available; and (c) economies of size, which means pooling and/or profitsharing⁵.

e. The MGU Plan should offer self-funded LTD; death benefits and supplemental employee-pay-all coverages.⁶

f. There should be formed a new trade association for MGUs exclusively devoted to the interests of the self- funded health care plan ⁷.

The MGU should have available certain vendor services which are in the best interest of the employers:

· Networks/UR ⁸

· Accounting (audits, e.g.) ⁹

· Actuarial ¹⁰

· Miscellaneous ¹¹.

g. It is expected that in underwriting, rating, pooling and experience rating, the MGU will use the best in available tools/skills (actuarial, statistical, Monte Carlo Simulations, e.g.) ¹².

2. The arrangement should disrupt the present marketing as little as possible. One essential change appears essential; i.e., self-funding (as a concept of risk sharing) must be clearly distinguished from an ASO arrangement (which is merely another commodity) by all parties and vendors.

3. The highest possible standards of prudency must be achieved; conflicted-interests must be assiduously avoided ³.

4. The stop-loss should be changed in many ways. See Critique entitled Suggested Stop-loss Change ¹⁴.

5. The numerous contracts which make the MGU Plan run smoothly must carefully cast each in the role which suits it best.

a. The MGU dominates in risk, underwriting, pricing, pooling, etc. as well as providing the signature plan and the network(s)/UR functions.

b. The employer is free to choose its agents, brokers, consultants, TPA, etc., as well as the set the benefits within the parameters of the MGU Plan. The TPA must be MGU-approved, however.

c. The TPA is the recordkeeper, claims processor, stop-loss facilitator, etc., under direct contract with the employer.

d. The producers are, as is traditional, under the control of either the TPA, the employer, or are independent as suits the best interests of the employer.

e. The stop-loss carrier has, as is traditional, a direct contract with the employer, but assigns all or most of the responsibility, therefore, to the MGU.

6. The monitoring of the activities of the parties and vendors will use Web-based automation to the maximum extent possible. HIPAA rules will be used to help and not harm self-funding.

Endnotes

1. Growing dominance of ASO arrangements, which are claiming successes in market-share post HIPAA must be noted. This funding model, more than fully insured or HMO, will be the primary challenge to the TPA-administered model.

2. See Attached Critique entitled MGU-Managed Self-Funded Plan.

3. By micro-managed, we mean an agreement which (a) has a text which sets forth in minutia the many options available to the Employer and (b) is driven by a Schedule of Benefits (or Schedule of Options, e.g.). The goal is to have the text of the Agreement be very detailed and all-encompassing and be posted to a Web Site. The motive is to avoid problems with textual-meanings, achieve uniformity, reduce expenses and give the Employer the options it needs and deserves. This logic is in place with the Self'-Funding of Health Care Benefits Web Site.

4. See attached Critique entitled Risk Management Guide to Health Care Benefits.

5. A single MGU, with a block of business from numerous TPAs, e.g., will be able to provide better terms, etc., to the self-funded in these areas: stop-loss, provider discounts, vendor-provided services, new products, pooling and profit-sharing.

6. Self-funded LTD is a concept which not only has arrived, but is actively being pursued by larger employers at present. See Critique entitled Self-Funding of Long Term Disability Benefits. Also, self-funded death benefits may be offered through

a VEBA. Further, self-funded supplemental benefits (critical care, e.g.), even though employee-pay-all, may be treated as ERISA benefits. See Self-Funding of Death Benefits and Self-Funding of Supplemental Benefits.

7. For all of the classic/traditional reasons there should be formed a trade association of MGUs that specialize in self-funded stop-loss.

8. MGUs will doubtless compete on the economic value to the self-funder of their networks and managed care related services.

9. A great service to the self-funder and the TPA will be the MGU-offered accounting service which will be useful primarily in these areas: plan audits (so-called independent accountant opinion) and SAS 70.

10. A great service to the self-funder and/or TPA will be the MGU-offered actuarial services which will be useful primarily in these areas:

· Annual actuarial Report (funding, reserves. COBRA premiums)

· Claim Reserves (traditional and SOP 92-6 model)

· Monte Carlo Simulation

· Benefit Content Analysis

· Government-required (MEWA, government entities, school district, e.g.).

11. Examples of miscellaneous include the following:

• EAP
• Benefit Attorney and/or Expert Witness
• Telephone Hotlines
• Medical Consultants.

12. What is suggested is a remodeled underwriting, rating, pooling paradigm. For example:

• Certain plan provisions should be given stop-loss discounts (anti-duplication amendment, e.g.). Certain new underwriting factors should be considered (acceptance/rejection by employer of methods of plan governance, e.g.).
• HIPAA and privacy will force changes in plan underwriting; such changes must help the competitive position of self-funded plans.
• Pooling and profit-sharing must be practiced with the greatest vigor so as to remove as far as is possible the data mishandling which is designed to bias expected results. That is, the data and claims gaming must be reduced.
• By having larger numbers, less data rigging, profit-sharing and pooling, the actuarial principles traditionally the foundation of insurance will have a chance to be applied. With such stability, will be applied Monte Carlo simulations with their excellent decision-making usefulness to the self-funder and its vendors.

13. Of particular concern to the writer is the conflicted-interest of the insurer with its ASO arrangements whereby the administration and the stop-loss are not truly independent.

14. The need for stop-loss changes is here. See Critique titled Stop-Loss and Suggested Changes.