January 8, 2015 by Tony Novak
The precise use of language is one of the key distinctions between professionals and non-professionals in any field. The health insurance and employee benefit industry generally do a good job of upholding professional standards in this regard. Yet it seems that leniency in some types of terminology is contributing to a lack of understanding of today’s health plans. This is illustrated in a recent discussion of a very basic point employee health plans.
One insurance producer wrote to me: “Self-funded/self-insured means the business funds their insurance claims, but usually only to a certain extent. They use a re-insurer to underwrite, say, over $10,000 in claims for each insured and sometimes use a 3rd party administrator handle the claims and paperwork. It is health insurance.” He also wrote “Now, under ACA, if an individual/family has a $6,000/12,000 deductible it could be said that they have a partially self funded plan” and “‘self-funded’ is still insurance”.
Actually, “self-funded” is not insurance and ACA insurance is not “partially self-funded”. The producer just plainly misstated the basic facts here. These terms have specific meanings and should not be confused. There are potentially serious consequences of misrepresenting one type of health plan as another. Financial protection, governing law, tax treatment and the administrative regulations of the health plan depend on the type of plan. Virtually every state has market conduct rules that restrain insurance producers from using misleading or inaccurate terminology. Yet it seems clear from this bit of communication that some producers may not understand the distinction or why it is important to use the precise proper terminology when talking about these health plans.