Self-insured vs. fully-insured, based on health status

[Guest Damien]

I would be interested in hearing any opinions on a strategy for preserving plan assets. If a self-funded client were to maintain fully-insured policies on the side, and move people into them as large charges were received, could this be construed as discrimination based on health status?

The usual example I see for that type of discrimination is someone denied entry into a plan because they are expected to incur major charges. In this case they are already in the plan and incurring those charges. No one is being denied entry into a plan, it is just a question of where they end up.

It is possible some new members have been shuttled straight into the fully-insured plan, but I believe most are moved after enrollment into the self-insured plan, when the major charges start rolling in.

To my knowledge the fully-insured plan is on the whole at least as generous as the self-insured one, but I suppose it is possible that on a specific benefit the self-insured might be richer.

My obvious concern is the appearance of discrimination, since the plan you end up in is determined by your health status. These plan changes are not member elections, and happen at all times in the plan year. I don't think the member has much choice in the matter.

Has anyone seen this before?

[KIP KRAUS]

Damien:

I’m not sure I understand what the rational of doing what you suggest is. Doesn’t the full-insured plan. Doesn’t the fully-insured plan charge the employer for claims up to a stop loss amount? Where are the savings?

In my opinion, if the full-insured plan is a pooled or community rated plan, and the insurer finds out what’s going on they will cancel immediately.

Based on the information you have provided it’s difficult to even see any advantage in what the employer wants to do, unless the employer is trying to scam the insurer.

[Guest nac]

Ditto Kip. If I understand you correctly, and it's not a stop-loss or min prem plan, your client is perpetrating blatant antiselection.

Not to mention raising all kinds of medical privacy issues for the plan participants.

[Guest Damien]

I have no idea what the employer is paying for these fully-insured plans. I do know this employer closely polices the claims coming in on the self-insured plan and is quite rigorous about denying anything possible under pre-x, medical necessity or anything else they can think of.

They seem to be trying to keep the self-insured pool as "clean" as possible, even if it costing more in the long run to maintain the fully-insured policies.

Kip: I assume you mean by "scamming the insurer" the "full" insurer, who is getting the sickest people only out of an employee group. Of course as a self-funded, the employer is running the show, but do you see any potential problems for us as the TPA for the self-insured plan?

Nac: Could you elaborate on your comments re the "stoploss or minimum premium plan" consideration? I'm not entirely sure what you mean.

[jeanine]

How does the Plan handle notification in these instances? As I understand the situation you are presenting, you have some people in a self-funded plan (ERISA disclosures, federal law & courts, federal subrogation)and some people in a fully insured plan (state mandated benefits, state subrogation, state court remedies). Are your enrollees even aware of the fact that they are being shifted from one plan to another? At least in Ohio, if they are in an insured product plan, they must be given certain documents that differ from ERISA documents. They also must have copies of all amendments to the plan before they are effective as well as notice of the state external review procedure on all explanations of benefits. Can't the company achieve a similar result by buying adequate stop-loss insurance. This sounds like a disaster waiting to happen. I would worry about: 1) state insurance department, 2) DOL, 3) fraud investigation, 4) reaction from the insurance company when it realizes what's going on.

[KIP KRAUS]

Damien:

As you can see, the more conversation generated by your question the more complicated the issue becomes. Just to bring up another issue, if the employer is charging employees for coverage and doing so via a Section 125 plan, how do they justify moving a person from one plan to another without there being a qualified event?

On your question regarding any problems with you continuing to be the TPA, I'm not an attorney, so I can't give you any advise in this area. However, if I were you I'd contact an attorney.

In addition,I see no advantage to the employer in doing what he is doing unless he thinks he will not have to pay the full-insured plan insurer(s) for adverse claims experience.

NAC and Jeanine both bring up excellent issues that need to be concidered.

[jeanine]

I would definitely consult an attorney on this one as Kip suggests. While you may be protected in the civil arena if you have good "hold harmless" clauses in your Admin. Services Only agreement with the client, your inaction in an instance which may or may not be insurance fraud, is not covered under any HH clauses as this would be a criminal matter. I understand the position that you are in as I also work for a TPA and my concerns are not always shared with the people here with the ultimate authority. There certainly is the pressure to keep a client but this one requires a closer look to avoid real trouble for your employer.

[Guest Damien]

Thanks to all for your input. You raised issues beyond what I was concerned about to begin with.

[Kirk Maldonado]

How did you talk the insurance company into accepting such an arrangement? Was there full disclosure of all the facts? I cannot conceive of an insurance company consenting to such an adverse selection arrangement if they knew all the facts. Without full disclosure, I think that your client is at serious risk of the insurance company cancelling the policy. The insurance company might even try to do that retroactively, after refunding all premium payments (on the theory that there was a material misrepresentation).

[Guest nac]

What they said . . .

I think, in retrospect, my reference to stop-loss is pretty irrelevant, given that there are definitely two plans. My thinking was that perhaps it was in reality a single plan . . . but even that logic doesn't quite work. Sorry about that.