T H E M I N I M U M P R E M I U M A R R A N G E M E N T
T H E S E C U R I T Y O F A F U L L Y I N S U R E D P L A N .
T H E A D V A N TA G E S O F S E L F - F U N D I N G .
D E S I G N E D E X C L U S I V E L Y F O R L A R G E R
As healthcare costs continue to rise at unprecedented rates, employers are searching for new ways to gain greater control of health plan expenses. And, your association, along with Trustmark Affinity Markets, is offering a solution: the Minimum Premium Arrangement.
The Minimum Premium Arrangement is a unique, alternate funding program perfect for larger, financially qualified member groups. It combines the security of a fully insured health plan, with a minimum premium agreement providing many of the advantages associated with self-funding.
TAKE CONTROL OF YOUR
HEALTH PLAN EXPENSES.
L I M I T I N G Y O U R L I A B I L I T Y
Minimum Premium limits your claim liability through two protective features:
■ Claim Liability Limit – This limits your total claim liability to a predetermined amount each year. It is calculated on a cumulative monthly basis based on expected claim levels, and is adjusted monthly according to participation. ■ Individual Pooling – This limits the
amount of claim payments you must fund for any one covered person in each policy year to a predetermined individual pooling level.
Trustmark Affinity Markets pays any claims above these amounts.
T H E L O W E R M O N T H L Y
P R E M I U M P A Y M E N T
The monthly premium paid to Trustmark Affinity Markets includes the following fixed costs:
■ Premium – Pays for plan operating costs, including booklets, ID cards, enrollment and eligibility, billing, claim processing, underwriting, etc. ■ Terminal reserve funding – Builds
legally required reserves used for funding claims incurred prior to, but paid after, termination. These claims are fully administered by Trustmark Affinity Markets.
■ Individual pooling – Protects you against payment of catastrophic individual claims
What is the Minimum Premium Arrangement?
This is simply a different way to fund your health insurance plan. It’s made up of two pieces: a fully insured health plan certificate, which describes the benefits and other health insurance provisions, and the minimum premium agreement, which details how the costs of the insurance plan are funded.
How It Works
The employer pays a reduced monthly premium to Trustmark Affinity Markets to cover the fixed costs of the insurance plan, and agrees to assume the cost of the expected, or predictable, claim payments. Trustmark Affinity Markets funds the cost of any excess, or catastrophic, unpredictable, claims, and issues expected claim payments directly from the employer’s funds, using a separate bank account established and maintained by the employer for this purpose. Because benefit payments are drawn directly from your funds, rather than paid to the insurance company in the form of premium, the premium taxes on the insurance plan are reduced. Plus, Trustmark Affinity Markets pays any excess claims, giving you an added level of protection.
Who should choose the Minimum Premium Agreement?
The Minimum Premium Arrangement is ideal if you’re searching for the
protection of a fully insured health plan with the cash-flow advantages of a self-funded plan. It’s also a good fit for self-self-funded groups who like the cash-flow advantages
of self-funding, but want to maintain risk protection from increasing healthcare costs.
W H O H A N D L E S W H A T ?
T H E E M P L O Y E R
■ Pays Trustmark Affinity Markets a small monthly amount covering fixed insurance plan costs:
1. Premium for operating costs, plus an SCR contribution. 2. Terminal reserve funding to build legally
required reserves used to fund claims incurred prior to, but paid after, termination.
3. Individual pooling premium to protect the employer against payment for catastrophic individual claims. ■ Covers the cost of the claim payments up to
predefined limits.
■ Realizes immediate cash-flow benefits when claim experience is favorable.
T H E I N S U R A N C E C O M P A N Y
■ Makes claim payments directly from a separate bank account established and maintained by the employer.
■ Makes benefit determinations and explanations to insureds.
■ Funds the cost of any excess claims above the claim liability and individual pooling limits. ■ Provides weekly, monthly and annual reports
illustrating financial accounting details. ■ Puts your mind at ease knowing you have the
protection of a fully insured health plan.
Improved cash-flow. The employer pays a reduced monthly
premium, and claims are funded only as they are paid. Plus, because most benefit payments are drawn directly from your funds rather than paid to the insurance company as premium, premium taxes are less, resulting in lower overall expenses.
Limited employer liability. Your claim risk is capped, limiting
the effect of unexpected or catastrophic claims.
Special contingency reserve (SCR). The SCR Contribution is
billed along with the premium and is maintained in trust for the benefit of the association insurance program. Once the SCR reaches a certain level, the association board of trustees may use it to offer premium holidays or offset future rate increases for all member groups.
Deficit recovery limit. Any claim liability deficit is carried
forward. The deficit recovery limit restricts the recovery in any one future plan year to a specific percentage of the prior year’s claim liability limit. Any remaining deficit not recovered is carried forward.
Financial reporting. Weekly, monthly and annual reports
provide significant financial accounting details.
Optional guarantees. The optional Premium Guarantee and
Terminal Reserves Guarantee may be implemented the first year and renewed annually to limit premium and reserve funds payable to a predefined amount, based on contract rates/factors generated and actual enrollment. (Certain restrictions may apply.)
Benefits of Minimum Premium
Conventional Funding vs. Minimum Premium
Although both plans are fully insured, the funding is quite different between conventionally funded and minimum premium plans. It’s important to highlight the fact that a conventionally funded rate is composed of 100 percent fixed costs. Regardless of claim activity, the group still pays the same rates each and every month.
Minimum Premium enables you to treat claims costs, which are the largest portion of the total premium, on a pay-as-you-go basis. The remaining fixed costs usually account for less than half of the total cost of the plan. This illustration shows
a breakdown of costs for conventional funding vs. minimum premium.
Fixed Costs Reserves Retention Costs Reserves Retention Costs Paid Claims Paid Claims Reserves Retention Costs Retention Paid Claims Pooling Costs
Conventional Funding
Percentages based on a first-year group with a $75,000 individual pooling level. This graphic is for illustrative purposes only.
Minimum Premium
100 percent of the total premium is fixed
cost and is due every month, regardless of
claim activity.
In this example, the group pays about 40 percent
of the “total” premium as fixed costs of the plan.
Claims are accounted for as they are paid.
4 Fixed Costs Reserves Retention Costs Paid Claims Reserves Retention Costs Reserves Retention Costs Retention Costs Pooling Costs Paid Claims Paid Claims SCR
Claim Liability Limit
Actual Paid Claims
Employer Funding
Excess Liability
Monthly Cumulative Monthly Cumulative Monthly Cumulative Monthly Cumulative
January $50,000 $50,000 $15,000 $15,000 $15,000 $15,000 $35,000 $35,000 February 50,000 100,000 20,000 35,000 20,000 35,000 30,000 65,000 March 50,000 150,000 25,000 60,000 25,000 60,000 25,000 90,000 April 50,000 200,000 95,000 155,000 95,000 155,000 (45,000) 45,000 May 50,000 250,000 120,000 275,000 95,000* 250,000 (70,000) (25,000) June 50,000 300,000 45,000 320,000 50,000 300,000 5,000 (20,000) July 50,000 350,000 35,000 355,000 50,000 350,000 15,000 (5,000) August 50,000 400,000 35,000 390,000 40,000 390,000 15,000 10,000
Protection and Flexibility
In this example, the employer begins the year with three months of relatively low claims, allowing $90,000 in excess liability to accumulate by the end of March. The group then experiences higher-than-normal claims in April and May, and while the monthly liability remains level at $50,000, the additional $45,000 needed to fund claims in April comes from accumulated excess liability, so it continues to be funded by the employer.
In May, the remaining excess liability is not enough to fund the entire month’s paid claims. May claims are funded by three components: (1) The employer funds $50,000 from the monthly liability, (2) an additional $45,000 comes from excess liability
built up year-to-date, and (3) Trustmark Affinity Markets funds the remaining $25,000 paid during the month.
As months with lower claims follow, Trustmark Affinity Markets gradually recoups funds from excess liability as it accumulates, eventually balancing the claim liability against paid claims. If, at the end of the plan year, claims paid by Trustmark Affinity Markets could not be recovered from excess liability, a deficit would exist and be carried forward to future years. Any deficit recovery limitation would apply as future excess liability amounts are used to recover the prior deficit.
Sample Minimum Premium Accounting
This sample accounting illustrates how Minimum Premium facilitates cash flow and offers the security of a fully insured plan. If year-to-date claim payments exceed the year-to-date sum of monthly liability limits, Trustmark Affinity Markets funds the difference during any given month. Should the situation reverse later in the year, Trustmark Affinity Markets is reimbursed, rebalancing the claim liability against the paid claims. You receive monthly statements to reconcile the totals.
* In May, the insurance company funds an additional $25,000 in claim payments.
F I N D O U T I F T H E M I N I M U M P R E M I U M A R R A N G E M E N T
I S T H E R I G H T C H O I C E F O R Y O U
The Minimum Premium Arrangement is available to larger employer groups. If you’re looking for the advantages of self-funding – improved cash flow, lower premium taxes and more detailed reporting – with the loss protection and limited risk of a fully insured health plan, contact your broker today.
400 Field Drive • Lake Forest, IL 60045 • 866.447.0639 www.trustmarkaffinitymarkets.com
Trustmark Affinity Markets has more than 50 years of experience serving associations and other affiliated organizations. Customers include bankers, electricians, franchise operators, manufacturers, private school systems, restaurants, wholesalers and more. Products sold or administered by Trustmark Affinity Markets are underwritten by Trustmark Life Insurance Company or Trustmark Insurance Company, both subsidiaries of Trustmark Mutual Holding Company.
As a mutual holding company managed for the benefit of policyholders, Trustmark is committed to providing outstanding value and unsurpassed personal service with nearly a 100-year track record of solid performance. Trustmark has assets of more than $2 billion and has a reputation of long-term financial stability, rated “A-” (Strong) for insurer strength by Fitch Ratings and “A-” (Excellent) by A.M. Best, the industry’s most-watched analyst of financial stability.
