MGU-Managed
Self-Funded Plan
For
www.self-fundhealth.com
MGU Plan
Parties to the Plan
Overview
The MGU (Managing General Underwriter) is the creator and overseer of a model health care plan which is to be marketed to medium and small single-employer groups. Vendor services (TPA, Marketing, Consulting, Managed Care, Stop-Loss, e.g..) are arranged in a somewhat more structural manner than is typical so as to accommodate the different goals of the model plan. The model plan attempts to use all that is good with self-funding and avoid, to the extent possible, everything that is not good. It must claim virtue in being (a) lowest cost, (b) most in tune with legal, regulatory, compliance ethos, (c) simplest, (d) most efficient and cost-effective and (e) agreeable to no more than 25% of the potential market. It fine tunes the present practices but does not alter the basic structures, roles, etc presently in place and working. It is designed to offer a target-market an attractive option to ASO Funding.
These are the reasons why the MGU plan is different.
1.
Plan Document
The plan document is provided by the MGU and not the employer or TPA. See discussion of MGU.
2.
Proper Concept of Self-Funding
Every day, in every way, by the two parties and all of the vendors, will treat the MGU Plan as (a) a self-funding venture and not (b) a commodity like a fully insured plan.
3.
Competitiveness
The MGU Plan must deliver the lowest cost to allege any reason for existence. The primary devices to achieve such competitiveness are as follows:
· Strict underwriting
· Absence of conflicted interests
· MGU-managed plan document
· Profit and loss sharing by both the MGU and the employer with the carrier.
· Peace and harmony (absence of litigation) between the parties and vendors
· Adoption of risk management as a cost containing device; this particularly includes demand management. See Risk Management Guide to Self-Funded Health Care Plans.
· Sharing of stop-loss profits or losses by contract under trusts by both the employers (en bloc) and the MGU.
· Adoption of as many changes to stop-loss as may be appropriate. See attached Suggested Changes to stop-loss.
4. The MGU Plan achieves the usual goals but does so with these shifts in emphasis and control.
· The MGU dominates in matters of risk, plan design, underwriting, pricing, financial incentives, etc.
· The carrier’s paper is used for stop-loss but the role of the carrier is to approve all of the contracts, terms, rules, etc. and also to give the final approved to all claims.
· The TPA continues to be dominant or all matters of claims processing, administration, etc. as well as consulting (unless such is assumed by others).
· MGU Plan may be placed by any of the following: (a) TPA, (b) producer or consultant, or (c) directly by employer. Pooling must be a function of (a) TPA and (b) electing employers, however.
MGU Plan
The MGU plan is a self-funded plan (ERISA-governed or otherwise) with a core set of benefits, provisions, etc. While modified by an extensive Schedule of Benefits, it has a single set of terms, definition, provisions, etc. The Plan Document, without the Schedule of Benefits, is found on the MGU’s Web site. The Schedule of Benefits contains a Section for Plan Amendments to the provisions, terms, etc. should there be any.
The underwriting rules will accommodate variations in the Schedule of Benefits. Examples include:
· LTD
· Elective Rx
· Coordination of Eligibility (no COB, e.g.)
· Alternate therapies
· Physician extenders
· Well-patient care
· Employer-sponsored supplemental coverages (dread disease, critical care, long term care, e.g.)
The employer, upon adopting onto the MGA Plan, assumes 100% of the risk. To protect itself, against large claims (either specific or aggregate), the employer is provided a stop-loss agreement attached by the MGU but using the paper of the stop-loss carrier.
For the stop-loss business shared by the carrier and the MGU which is used to protect a block of employer’s self-funded plans they share the risk as follows:
1. There shall be determined by an agreed upon formula a profit or loss on such block designated by P or L.
2. The carrier shall pay 25% of P into a trust account for the MGU and 25% of P into a trust account for the block of employer’s plans to be used as premiums or claim stabilization purposes.
3. Where there is a loss, the MGU shall give back 25% of L either on as cash or as a reduction in its stabilization trust account. The employer trust will also give back 25% of L. Where such trust funds are insufficient to pay 25% of L, such difference will be forgiven by the carrier.
The carrier is expected to retain at least 50% of the risk; the MGU may reinsure its 25% exposure if it so elects.
The trust which holds the employer experience refunds will be governed by a trust agreement specifying the manner in which the money will be governed; such trust has the TPA as trustee. The trust which holds the MGU experience refunds will be governed by a trust agreement specifying the manner in which the money will be governed; such trust has the MGU as trustee.
Each employer which adopts on to the MGU Plan will be provided stop-loss as follows:
· Stop-loss carrier provides a traditional agreement with the employer as applicant- owner-applicant and payer.
· The MGU, under contract with the carrier, will underwrite, rate, attach, issue and generally manage the stop-loss. The MGU will serve as intermediary to the carrier as regards claims but will not have the final authority to adjudicate stop-loss claims.
· The stop-loss is not a plan asset.
· The stop-loss paper will be that of the carrier.
· The MGU may replace the stop-loss carrier or the stop-loss carrier may resign. The stop-loss carrier may not replace the MGU because the MGU Plan is the property of such MGU.
These are the principal parties to the Plan.
Primary
Employer and Plan Sponsor
Stop-loss carrier
Vendors
TPA
Producer (agent, broker, consultant, risk manager)
MCO (Managed Care Organization)
MGU
While there may be other vendors (EAP, e.g.), such are secondary to the principal vendors and are to be treated as subvendors thereto.
The role of the MGU is both that of general contract and risk manager. As general contractor, the MGU sees that the principal parties are in place with proper contracts; as risk manager, the MGU may underwrite, attach, rate, non-renew, etc. Further:
· The MGU alone will provide the TPA access to favorable networks or UR facilities unless it can be demonstrated to the MGU that the TPA’s network is superior.
· The MGU will provide the legal, actuarial and managed care services.
· The MGU will have no authority over marketing, TPA-provided services (claims, recordkeeping, compliance, etc.)
· The MGU, by contract, will act as a Managing General Agent be the NAIC definition with authority to manage the risk, share in the profits or losses, arrange stop-loss, etc.
· All access to the stop-loss carrier will be through the MGU unless provided contractually otherwise.
· The MGU will always have a contract with each of the stop-loss carrier, the MCO (if such is used) and the TPA. There may or may not be a contract between the MGU and the producer. There will never be a contract between the MGU and the employer.
The producer may an agent/broker/risk manager/consultant whether acting independently or as an alter ego of the TPA. To the producer, the MGU Plan provides such producer and its principal, the employer, with most, but not all, of the choices available with the traditional options.
· The range of plan benefits is broad but the plan document text is set by the MGU and may be modified only by plan amendment.
· The MGU Plan requires a MGU-approved TPA.
· The MGU Plan has the stop-loss in place with a pre-arranged carrier.
· The MGU brings to the table pre-arranged a network and vendor services. They may be accepted or rejected by the employer subject to approval by the MGU.
· The producers will have no direct or indirect involvement in the underwriting or rating process.
· In summary, the producer will forfeit some degrees of freedom in plan design and risk attachment but will gain more competitive self-funding proposals.
The role of the TPA is essentially the same as with the traditional arrangement except as follows:
· While the TPA may dominate in the plan design, the plan document text must be that of the MGU.
· Recordkeeping and claims processing responsibilities will remain unchanged.
· The MGU may replace its network and UR vendor services with those of the TPA or may refuse to do so.
· To equally honor the employer and the stop-loss carrier, the TPA should become an agent of the carrier as well as an agent of the employer.
· The TPA becomes the trustee of a stop-loss premium stabilization trust fund which has the TPA employer-clients as trust beneficiaries.
The TPA retains all of those functions which it does well as well as assume a greater role in the stop-loss underwriting. It may have to use the MGU’s network and UR vendors in place of its own. In exchange the TPA will gain more competitive stop-loss proposals with greater expectation of stability.
The stop-loss carrier gives the pen to the MGU but tightly manages the risk in these ways:
· Adopts some or all of the suggested stop-loss changes.
· Controls and monitors the activities of the MGU and TPA by highly structured and detailed contracts.
· Uses to an increased extent greater volume advantages, profit/loss arrangements, never underwriting/rating paradigm, e.g.
· TPA is made a party to the stop-loss agreement.
The carrier, in exchange for the giving of very competitive stop-loss terms, gains volume and control.
Employer
The employer is relatively unmindful of the differences in the MGU-Plan from the traditional. The employer should see the self-funded plan as a lower cost, more stable funding mechanism more free of worries, problems, confusion, etc. The control or dominance tradeoffs among the vendors, aimed at a lower cost product will hardly affect the employer. The premium stabilization trust will be a source of comfort to the employer but will probably not be translated into a significant positive. For the employer, the MGU Plan looks the best on the spreadsheet; however.