Fully Insured PPO Renewal, Self-Funding, and an HSA Option

Expected claims are roughly $490,000 if the current premium has an 80% loss ratio. The proposed specific stop-loss at $250,000 would cover the transplant claimant above that amount, but the stop-loss carrier will likely laser that claimant, raising the effective deductible for that individual and possibly excluding the condition. The $675,000 aggregate attachment is about 125% of $540,000 of expected claims, which is plausible, but with only 62 employees the aggregate is volatile: one additional $200,000 claimant can blow through the attachment. Fixed costs matter too: stop-loss premium might be $60,000 and third-party administration $35,000, so total fixed cost is about $95,000 before claims. At expected claims, total cost is about $585,000 versus $612,000, a savings of only about $27,000, while downside exposure could be $770,000 or more. Self-funding also brings ERISA fiduciary duties, Form 5500 filing, ACA market reforms, and the need for a competent TPA; it escapes state mandates and premium tax but not the ACA. At 62 employees with two known high-cost claimants, self-funding is not yet prudent. A level-funded arrangement or staying fully insured while introducing an HDHP is a better first step.

For 2025, HSA contributions are limited to $4,300 self-only and $8,550 family, with a $1,000 catch-up at age 55 and older. An HSA-qualified HDHP must have a minimum deductible of at least $1,650 self-only and $3,300 family, and an out-of-pocket maximum no higher than $8,250 self-only and $16,500 family. Ridgeline could adopt a $2,000/$4,000 deductible plan, contribute $1,000/$2,000 to employee HSAs, and let employees contribute the rest through a Section 125 cafeteria plan. Payroll HSA contributions are exempt from federal income tax and FICA; employer contributions must be comparable for similarly situated employees unless made through a cafeteria plan, and Section 125 nondiscrimination testing applies. Affordability for 2025 is 9.02% of the lowest wage: $34,000 times 9.02% equals $3,067 per year, or $255.58 per month. The current employee-only contribution is $410 times 30%, or $123 per month, which is affordable; the HDHP premium should also be checked against the same threshold. The plan must meet ACA minimum value and cover preventive care before the deductible.

Because Ridgeline has 20 or more employees, the group health plan is primary and Medicare is secondary for an active employee, even at age 68. He should not be forced to drop the group plan, and he should use the group plan first for covered services; Medicare may pay secondary depending on the provider's coordination. If he drops the group plan, Medicare becomes primary, but he loses the group network, prescription drug coverage, and any employer subsidy, and he may face gaps unless he enrolls in a Medicare Part D plan and supplemental coverage. A critical HSA point: because he is enrolled in Medicare Parts A and B, he is not an HSA-eligible individual. If Ridgeline adopts an HDHP, he can be covered under the medical plan but cannot contribute to an HSA, and the employer cannot make HSA contributions for him. The plan should not promise him HSA contributions. His Medicare enrollment does not excuse the employer from ACA reporting or from offering coverage, and he should receive clear written coordination information.