It’s true: Employers who self-fund their group medical plan have advantages and flexibility that fully insured coverage doesn’t offer. What’s key for these employers is being prepared for larger claims and ensuring they have reserves on hand or access to funds to pay providers on time.
Unexpected claims from high-cost conditions like premature births or from high-cost specialty drugs can be tough to pay, especially for groups operating on limited budgets. That’s why groups that self-fund typically purchase a medical stop loss policy. Stop loss is designed to reimburse policyholders when claims are higher than expected.
But notice that the term “reimburse” is used here. At its core, stop loss is a reimbursement product. Groups that choose to self-fund need to be prepared to make all initial claims payments themselves, or ensure their policy includes a provision that gives them advance access to those reimbursement dollars. The good news is that many carriers include advance funding provisions in their contracts.
Advance funding provisions:
Advance funding provisions can eliminate the extra step of employers borrowing funds to pay a claim and then having to wait days, weeks or months to receive a stop loss reimbursement for that claim.
How it works
Advance funding is typically only available once the policy’s specific deductible has been met.
If the claims administrator is a third-party administrator (TPA): The medical claims are typically pended until the advance reimbursement is received from the stop loss carrier. This can take a few days or a few weeks depending on the carrier.
If the claims administrator is an insurance carrier that provides administrative support only (ASO) and the stop loss is carved out to a third-party vendor: Advance funding may not be available. In these cases, the stop loss carrier may take a different approach to help self-funded employers fund large claims.
What to look for in a stop loss contract:
- Is advance funding available?
- What terminology does the stop loss carrier use to describe this feature? (advance funding, simultaneous transactions, expedited reimbursement, etc.)
- How is it addressed in the contract? (endorsement, discretion, etc.)
- If at the discretion of the carrier, is it contingent on renewal?
- Are there additional costs for the feature?
- Is advance funding available through the end of the policy year? If not, what are the limitations?
- How quickly can the carrier make funds available?
- Does the carrier provide advance funding if the claims administrator is an ASO?
- What is the process to initiate Advance Funding?
- What claim data is required for the carrier to expediate?
The stop loss industry created the advance funding option to help ease the financial burden of paying catastrophic claims. It’s important to understand the details in various carrier provisions and how any exclusions or limitations could affect access to funds.
To learn more about advance funding provisions, check out our Inside Track educational paper.