Your Healthcare Plan:Your Healthcare Plan:

To Fully Insure To Fully Insure or or

Self Insure?Self Insure?

September 2010 September 2010

John Faustgen, CEBSJohn Faustgen, CEBSBenefits Manager - Land O’Lakes, Inc.Benefits Manager - Land O’Lakes, Inc.

About Land O’ Lakes, Inc.About Land O’ Lakes, Inc. Fortune 250 Company with $12.1 Billion in revenueFortune 250 Company with $12.1 Billion in revenue Headquartered in Arden Hills, MNHeadquartered in Arden Hills, MN

One of America’s premiere farmer-owned cooperativesOne of America’s premiere farmer-owned cooperatives Extensive line of agricultural supplies, state-of-the-art Extensive line of agricultural supplies, state-of-the-art

production and business services to farmers, co-ops and production and business services to farmers, co-ops and customerscustomers

Leading marketer of dairy-based products for consumers, Leading marketer of dairy-based products for consumers, foodservice professionals and food manufacturers. foodservice professionals and food manufacturers.

Conducts business in all 50 states as well as Conducts business in all 50 states as well as internationally internationally

More than 12,000 employees, at 200+ LocationsMore than 12,000 employees, at 200+ Locations Approximately 1,500 union employees participate in Approximately 1,500 union employees participate in

Land O’Lakes Benefit Plans. Land O’Lakes Benefit Plans.

What is Fully-Insured?What is Fully-Insured?

When you buy a pre-packaged When you buy a pre-packaged medical plan on the open market.medical plan on the open market. In effect you are paying someone else In effect you are paying someone else

(an insurance company) to take on the (an insurance company) to take on the risk and administrative expense of a risk and administrative expense of a medical plan.medical plan.

This is known as being “fully-insured” This is known as being “fully-insured” or “fully-funded.” or “fully-funded.”

What is Self-Insured?What is Self-Insured?

When you design and pay your When you design and pay your group’s actual medical plan claims group’s actual medical plan claims and plan expenses. and plan expenses. You assume the risk of the costs of the You assume the risk of the costs of the

groups claims. In essence you are your groups claims. In essence you are your own insurance company. own insurance company.

This is known as “self-funded” or This is known as “self-funded” or “self-insured.”“self-insured.”

Comparison/ExampleComparison/ExampleClaims Turn Out as ProjectedClaims Turn Out as Projected

Funding TypeFunding Type Fully-InsuredFully-Insured Self-Insured Self-Insured w/Stop Lossw/Stop Loss

Employee Employee CountCount

500500 500500

ClaimsClaims $3,000,000$3,000,000 $3,000,000$3,000,000

Admin + Risk Admin + Risk CostCost

$750,000$750,000 $750,000 $750,000 Includes SL Includes SL

PremiumsPremiums

Insurer Profit Insurer Profit or (Loss)or (Loss)

$250,000$250,000 N/AN/A

Net Business Net Business CostCost

$4,000,000$4,000,000

Premiums Premiums PaidPaid

$3,750,000 $3,750,000

Actual costs Actual costs incurredincurred

Comparison/ExampleComparison/Example Claims 10% Less than Projected Claims 10% Less than Projected

Funding TypeFunding Type Fully-InsuredFully-Insured Self-Insured Self-Insured w/Stop Lossw/Stop Loss

Employee Employee CountCount

500500 500500

ClaimsClaims $2,700,000$2,700,000 $2,700,000$2,700,000

Admin + Risk Admin + Risk CostCost

$750,000$750,000 $750,000 $750,000 Includes SL Includes SL

PremiumsPremiums

Insurer Profit Insurer Profit or (Loss)or (Loss)

$550,000$550,000 N/AN/A

Net Business Net Business CostCost

$4,000,000$4,000,000

Premiums Premiums PaidPaid

$3,450,000 $3,450,000

Actual costs Actual costs incurredincurred

Comparison/ExampleComparison/Example Claims 10% Greater than ProjectedClaims 10% Greater than Projected

Funding TypeFunding Type Fully-InsuredFully-Insured Self-Insured Self-Insured w/Stop Lossw/Stop Loss

Employee Employee CountCount

500500 500500

ClaimsClaims $3,300,000$3,300,000 $3,300,000$3,300,000

Admin + Risk Admin + Risk CostCost

$750,000$750,000 $750,000 $750,000 Includes SL Includes SL

PremiumsPremiums

Insurer Profit Insurer Profit or (Loss)or (Loss)

($50,000)($50,000) N/AN/A

Net Business Net Business CostCost

$4,000,000$4,000,000

Premiums Premiums PaidPaid

$4,050,000 $4,050,000

Actual costs Actual costs incurredincurred

Self-Funding Features and BenefitsSelf-Funding Features and Benefits

FeatureFeature Increase Cash FlowIncrease Cash Flow Control of ReservesControl of Reserves Flexibility of plan Flexibility of plan

design, banking and design, banking and re-insurance levelsre-insurance levels

Portability of Plan Portability of Plan DesignDesign

Eliminates premium Eliminates premium tax in many statestax in many states

Not subject to state Not subject to state regulations or regulations or mandatesmandates

BenefitBenefit Use of $ until neededUse of $ until needed More Funds AvailableMore Funds Available More control in plan More control in plan

design, payments and design, payments and re-insurance levelsre-insurance levels

Less disruption for EEsLess disruption for EEs Savings of 2-4% on Savings of 2-4% on

insured cost reductionsinsured cost reductions Eliminate unnecessary Eliminate unnecessary

costly mandated costly mandated benefitsbenefits

Fully-Insured Features and BenefitsFully-Insured Features and Benefits

FeatureFeature Predictable Monthly Predictable Monthly

CostCost Leverage Insurance Leverage Insurance

Company’s Experience Company’s Experience and Financial Scaleand Financial Scale

Demands Less Work to Demands Less Work to Set-up Medical PlanSet-up Medical Plan

Most Legal Regulations Most Legal Regulations & Compliance & Compliance Requirements Handled Requirements Handled by Insurer by Insurer

BenefitBenefit Easier BudgetingEasier Budgeting Less Plan Overhead Less Plan Overhead

Resources needed and Resources needed and Transfer of RiskTransfer of Risk

More straightforward More straightforward for Buyerfor Buyer

Reduced Plan Legal Reduced Plan Legal and Fiduciary and Fiduciary ResponsibilitiesResponsibilities

Detriments of Self-InsuredDetriments of Self-Insured

Requires More Time Involvement in Requires More Time Involvement in Benefit Design, Installation and Benefit Design, Installation and Ongoing Medical Plan ManagementOngoing Medical Plan Management

Harder to Budget Medical Plan CostHarder to Budget Medical Plan Cost Fiduciary and Legal ResponsibilitiesFiduciary and Legal Responsibilities Claims Run-off Liability (After Plan Claims Run-off Liability (After Plan

Termination Date)Termination Date) Smaller Group with ongoing High Smaller Group with ongoing High

ClaimsClaims

Detriments of Fully-InsuredDetriments of Fully-Insured

Limited Selection of Medical Plan DesignsLimited Selection of Medical Plan Designs Must Adapt Insurer’s Administrative RulesMust Adapt Insurer’s Administrative Rules Insurer Sets Medical Plan Cost (Premiums)Insurer Sets Medical Plan Cost (Premiums) Added Cost for state premium tax, Added Cost for state premium tax,

mandated benefits and insurer profit.mandated benefits and insurer profit. No control in setting future plan trend or No control in setting future plan trend or

reserve levelsreserve levels

QUESTIONS?QUESTIONS?