As brokers and consultants have been developing strategies for their small- and medium-sized employers to prepare for the full implementation of the Patient Protection and Affordable Care Act in 2014, there’s been a growing interest in moving these clients to self-funded health plans. While there has always been advantages to self-funding, PPACA has added to the attraction of self-funding through opportunities for greater cost efficiencies and benefit plan design flexibility.

While self-funding is an increasingly attractive option for small and medium, it’s almost always only a viable option if accompanied by the purchase of appropriate stop-loss coverage. Under a self-funded health plan, the employer is taking full financial responsibility for funding that health plan, with unlimited liability for large claims beginning in 2014. Most small and medium employers cannot reasonably assume such risk without specific stop-loss to protect against individual catastrophic claims and aggregate stop-loss to protect against an unexpected amount of total claims in the year.

It might be tempting simply to send out requests for quotes to a number of stop-loss insurance carriers, line the quotes up on a spreadsheet and choose the lowest price. The process might even move beyond the pure commodity approach to evaluation and consider other factors such as experience of the stop-loss carrier, reputation for customer service and claims paying, cost containment support and financial strength.

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