The Employee Retirement Income Security Act of 1974 (ERISA) enabled employers to take more direct control of their health care costs. By combining what was essentially a VERY large deductible with the ability to skip a lot of unnecessary (but costly) extras, employers could save a lot of money.
In essence, the employer acts as the insurance company, and hires a Third Party Administrator (TPA) to act as its claims department.
Historically, ERISA plans have generally been the province of large groups. For smaller groups, the downside to such plans was really two-fold: increased overhead (administrative) costs, and the risk that the employer could end up spending more with an ERISA (often called self-funded) plan than a “regular” insured plan.
ACMG has developed a unique new product that brings the benefits of ERISA plans and the “stability” of fully insured plans to the small group market. InsureBlog recently had the opportunity to interview their Client Relations Manager:
1) Judy, what’s the biggest advantage of an ERISA-type plan over a more traditional fully insured one?
Larger employers can customize a health plan to include only the benefits they choose to offer, and limit the costs to those services they wish to offer. ERISA health plans are covered by the Department of Labor instead of the Department of Insurance, so ERISA plans are not required to offer state mandated benefits, which can account for up to 20% of an employers fully insured premium.
2) How does the PACE health plan differ from "traditional" ERISA health plans?
The initial difference is that the PACE Health Plan is for employers with as few as 10 employees, a market that usually does not have the opportunity to self-fund their health plan. PACE is a fully funded self-funded health plan...
■ A “fully funded” self-funded plan? Isn’t that an oxymoron?
...It means that the employer is issued a monthly contribution rate for each employee that includes all administrative costs and the maximum claims cost for that employee. This represents the second difference between PACE and traditional self-funding. The employer deposits their monthly contribution into their company's health plan account each month for their 12 month plan year, and that is all they pay. This key element of PACE removes the risk of a financial cash flow disruption by assuring the employer is never responsible for any funding above their monthly contribution. PACE was created through a partnership between ACMG and the ancillary providers. Stop-loss is provided through Companion Life (rated A+), which agreed to lower the normal aggregate corridor, reducing the liability for the smaller employer.
3) Can you tell us a little about what motivated you to design an ERISA health plan for smaller employers?
ACMG is a TPA [Third Party Administrator] and innovator of health plan benefit plans, primarily involved in development and administration of HMO's and PPO's. The one group we could not provide coverage for were smaller employers who were unable to deal with the financial implications of self-funding. In 1998 we began development of a self-funded program specifically designed for the small to mid-size employer. It took us 7 years to create the PACE Health Plan.
4) Is this plan available only in Ohio, or nationally?
The PACE health plan is created through partnerships with a specific PPO in each region. These partnerships take time to create; therefore, the PACE health plan is currently offered in Ohio, Kentucky and South Carolina. We are working on development in neighboring states.
5) What if a group went with PACE, but after a year or so decided to switch back to their old "regular" plan?
A client is committed to the plan for only a one year basis and they can move at the end of a contract year. The employer is considered a Fiduciary for the health plan account and is responsible for claims for that contract year. That is why they are required to stay for one year, however, the client owes no further payments to the plan after the end of the plan year.
6) This is probably a loaded question, but from the small employer's perspective, how much more complicated is the PACE plan than a "regular" fully insured plan?
I don't think use or administration of the plan will be any more difficult, and I believe in many ways our plan will be easier to use. We are a hands-on administrator, with an internal Utilization Review Department. PACE really looks like any other health plan. The medical questionnaire is probably more thorough than most. This is because rates are established based on the answers to that questionnaire. This is not a health plan for every group, but it is a very cost effective health plan for many groups.
As noted, this is not a panacea, either, but it does offer a new, and potentially powerful, tool for small business owners to effectively manage their health care costs. I really appreciate Judy’s time, and her quick response.