Benefit Funding Options

1. How much risk does the company want to take on?
2. How do you determine the contribution split between employer and employees?

These are complex questions with ramifications for all involved parties. It is important that as an employer, you fully understand the choices.

The "risk" question: When looking at employer sponsored benefits funding, there are three basic options to consider:

• Fully Insured – 100% of the risk is on the insurer
  • The insurer sets the rates annually.
  • If claims and administrative expenses are greater than the total premium collected, the insurer absorbs the loss
  • If premiums collected are significantly higher than claims and expenses, the surplus remains with the insurer
• Retention Accounting – Risk is shared by the insurer and the plan sponsor
  • Rates are set annually by the insurer
  • If claims and administrative expenses are greater than the total premium collected, the insurer absorbs the loss
  • If premiums collected are significantly higher than claims and expenses, the surplus is shared between the insurer and the plan sponsor
• Administrative Services Only (ASO) -100% of the risk is on the employer/plan sponsor
  • A deposit is put on account with the administrator equal to several months of anticipated claims and administrative costs
  • The administrator pays out claims from the deposited funds
  • The plan sponsor is billed monthly for the total cost of all claims and admin fees to replenish the account
    • Options are available to set a budgeted monthly premium ie.-Single/Family rates for Health & Dental, and then do a regular reconciliation with the administrator. This is referred to as Budgeted ASO and allows for ease of budgeting from month to month.
  • If paid premium exceeds claims and administrative fees, the entire surplus is owned by the plan sponsor. Conversely, any shortfall must be repaid by the plan sponsor within a specified period of time.
    • It is important to note that "Stop Loss" insurance is available to limit the exposure level and therefore limit the company's risk. Stop Loss insurance pays for claims above a specified level.

• Your company’s benefits philosophy
• Budget limitations 
• Tax effectiveness – This encompasses both employer and employee considerations
• Total compensation levels 
• Market competitiveness