Basic risk theory underlies the employer’s decision to self-fund. Critical to self-funding is the need to have the terms of stop-loss within the employer’s comfort level. Other risk management considerations involve (a) management attitudes, (b) inherent nature of employer’s risks, (c) employer’s financial condition, (d) maintenance of reserves, (e) administration, (f) employee or union relations, (g) acquisitions/mergers, and (h) funding. The general attitude that small plans are necessarily not candidates for self-funding is simply not correct; generally, any plan in excess of 50 participants sponsored by a stable and well-managed employer is a self-funding candidate. A feasibility study is the usual basis upon which the employer bases its go or no-go decision to self-fund.
Stop-loss is the fail-safe to the employer which provides financial comfort and assurance that the employer will not be at risk to an extent which would cause unacceptable financial harm. The employer is applicant-owner-payer-beneficiary of such coverage. Since stop-loss has been a buyer’s market, self-funding has grown and prospered. The primary responsibility for arranging the stop-loss is typically with the plan’s consultant (usually the TPA of smaller-medium plans or the consulting firm with the larger plans). Stop-loss is sold and packaged in many ways:
Direct with carrier, or indirect through an intermediary (or underwriter).
Low going in rates with tougher claims handling rules and terms; or vice versa.
Broad range of benefits, terms, provisions, etc.
Carrier dominant to the risk (little or none of the risk retroceded); or vice versa.
Attempts by states to regulate self-funded plan through the back door (i.e., by putting restrictions on stop-loss) is being contested presently in the courts with such attempts likely to be of no avail to the states. The Supreme Court will eventually have to decide this issue of back-door regulation.