FREQUENTLY ASKED QUESTIONS ON SELF-FUNDED PLANS

What is a fully insured health plan?
What is a self-funded health plan?
Why do employers self fund their health plans?
With what laws must the self-funded plan comply?
Is self-funding for everybody?
What is excess-risk (or Stop-Loss) coverage?
Do I have to redesign my existing health plan?
What about payroll deductions?
Will my life insurance coverages be affected by self-funding my health plan?
Who will take the place of the insurance company to administer the plan?
What are the advantages in using a TPA?
Do TPAs do as good a job, or a better job, than insurance companies??
Why should I self-fund my health plan?

What is excess-risk (or Stop-Loss) coverage?

Excess-risk coverage is insurance sold to sponsors of self-funded health plans to guard against unacceptable losses. There are two types of excess-risk coverage:

• Specific coverage that insures against a single catastrophic claim that exceeds a dollar limit chosen by the employer and agreed to by the excess-risk carrier. For example, specific coverage would come into play if one of the covered participants was in a catastrophic accident and had claims that exceeded the agreed upon dollar limit. In this case, the specific coverage would reimburse for that participant's covered expenses beyond that dollar limit.
• Aggregate coverage that insures against all the claims exceeding a specific dollar limit chosen by the employer and agreed to by the excess-risk carrier. If all the claims payable exceed the agreed-upon dollar limit, aggregate coverage would reimburse the excess.

Excess-risk coverage protects the plan against unforeseen catastrophic claims that would cost more than is budgeted in the plan and place undue financial burdens on the employer.

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