SELF-FUNDING
Grow Your Business with Self-Funding
FOR GOVERNMENT CONTRACTORS by KC CANNON, Jr.
C
alifornia is a growth market for self-funded plans. Clients are asking brokers about selffunding as the latest Affordable Care Act (ACA) employer mandates take effect. Historically, self-funding carriers wouldn’t consider a group with fewer than 250 participants. But, in recent years, groups with as few as 25 have been successful with selfinsured plans. While self-insuring can be a good cost containment tactic, it’s not for everyone. Smaller uninsured groups have a tough time moving to a selfinsured plan because actuaries want historical claims/experience data for underwriting the stop-loss insurance. Employers need to have a good handle on their claims history and adequate cash flow to fund claims. The employer mandate took effect January 1, 2015 for applicable large employers with 100 or more full-time employees. The mandate becomes effective January 1, 2016 for most employers SEPTEMBER 2015
with 50 to 99 full-time employees. It can be extremely complex to determine the number of full-time equivalent employees. It involves measurement periods, administrative periods, and possibly stability periods. For example, in the construction industry, workers have wildly fluctuating hours from week to week. The ACA considers a full-time employee to be anyone who is employed an average of 30 hours per week or more or 130 hours per month or more. For hourly employees, the employer must use actual hours of service and hours for which payment is made or due including paid time off. Under the ACA, a worker is considered a variable-hour employee when the employer cannot reasonably determine, when hiring, if the worker will work an average of 30 hours per week or more. The Fringe Government contractors have added complexity. Suppose a contractor bids
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on projects under the Davis-Bacon Act, Service Contract Act, state prevailing wage laws, and living and responsible wage ordinances. They get a list of wage determinations for each job classification in the contract. They have a required amount of money to spend on employee benefits, called “the fringe.” It includes a base wage and a fringe amount to provide bona fide benefits, such as health insurance for workers. Employers can pay cash to employees in lieu of fringe benefits. Many government contractors believe that paying cash is the easiest way to meet the obligation. Or they offer health insurance, but fail to take proper credit against the fringe, effectively paying twice for the same benefit. But contractors can save hundreds of thousands of dollars over the life of a contract when they offer benefits instead of cash. They can also get into compliance quickly with ACA mandates. When government contractors use the fringe to provide benefits CALIFORNIA BROKER | 25