The "Buydown" is a term we use to define a partial self-funding arrangement an employer can use when providing a health insurance plan for employees. Provisions for the Buydown are found in Section 105 of the IRS code. We've been using the Buydown for over 20 years. It has been proven to be very successful. It provides an extra resource for employees and their covered family members when they experience claims problems. It provides the company a better understanding of claims paid and benefits used.
A Buydown Case Study
ACME Company has a plan in effect with Regence BlueShield. It has a $500.00 deductible, an 80%/60% in and out-of-network co-insurance percentage with a $3,500.00 total out-of-pocket worst case (all claims out-of-network). The only supplement is the Rx card.
ACME's total monthly premium is $7,618.26. This is the amount sent to the carrier each and every month regardless of the number of claims. ACME pays the premium and Regence BlueShield takes all the risk.
The Buy-Down focuses on the deductible and the premium savings.
The Buy-Down plan with Regence BlueShield has a $3,000.00 deductible with a total out-of-pocket of $3,600 worst case (all claims out-of-network). It has the same prescription card, plus a $500 per year accident supplement.
The total premium for the Buy-Down plan for ACME would be $5,383.00, which is a difference in monthly premium of $2,235.23 or $26,823.12 per year. The annual savings of $26,823.12 is set aside.
Employees are provided a $500.00 deductible plan. After employee meets their deductible, 80% or 60% of the next $2,500 ($3,000 less $500) will be reimbursed to them by ACME. The reimbursement funds come from the annual premium savings of $26,823.12. ACME should save $13,000 or more by the end of the plan year.
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