Participating Funding Arrangements (PFAs): What Employers Need to Know

by Kevin Ryan, Senior Vice President

Today’s employers are doing everything they can to provide the best possible benefits programs to their employees. But they also want to make sure these benefits programs are the right fit for their employee population, especially as many employers have found that their employees are over-insured. 

That’s why many employers are embracing Participating Funding Arrangements, otherwise known as PFAs. A PFA combines a traditional group health plan with an employer fund that offsets employee healthcare costs. This allows employers to have more flexibility and control over what they spend, while providing employees with a high quality benefits program that covers their healthcare expenses.

Today, I’m sharing some information about why employers are embracing PFAs, as well as how you can successfully introduce a PFA at your organization.

What are PFAs and Why Might They Be a Good Fit?

A typical PFA consists of a fully-insured medical plan in combination with self-insured cautionary coverage that then provides the benefit to the employee. These PFAs are designed to trim the fat out of a traditional group health plan by implementing higher deductibles and higher copays. 

However, rather than expecting employees to pay these higher deductibles, PFAs combine these traditional plans with a fund to offset employees’ deductibles and copays. 

The fund is set up to address any sort of out-of-pocket expenses the members have individually or collectively as a family. 

PFAs are attractive to employers because they allow for a lot more financial flexibility than traditional plans, especially as employers have found that many of their employees are over-insured. By combining a higher deductible plan with a fund, employers are able to offer the same level of coverage to employees without paying unnecessary expenses for healthcare benefits that their employees otherwise don’t use.

How to Introduce a PFA into Your Organization

Although a PFA is often an easy sell to the finance department, we’ve seen many HR teams concerned about confusing their employees with the roll out of a new plan. After all, they don’t want employees to have to jump through significant hoops to get healthcare coverage. 

Thankfully, introducing a PFA to your employees is not very different from introducing a new annual healthcare plan. We recommend creating an implementation project plan, being deliberate with your communication strategy, and working with an informed partner. This will ensure that your PFA roll-out goes smoothly.

Create an implementation project plan

Because a PFA is a departure from a traditionally-managed benefits plan, it’s important to reduce employee confusion as much as possible. That’s why we detail how we’ll implement the PFA in an implementation project plan. 

As part of this project plan, we work with the administrator to walk through how the plan is administered, as well as what functions it has. The file feed and the claim reimbursement is very much like a flexible spending account plan or health reimbursement account. Once administrators see how this works, they’re generally more comfortable sharing these details with their employees.

Be deliberate with communication

Not only do you want to create an implementation project plan, but you also want to be deliberate in how you communicate with employees. We’ve found that it’s most effective to 

draw a correlation between the employees’ current experience with the experience after the switch to the PFA. This allows us to communicate that the employee experience will essentially remain the same–– copays will remain the same, as will deductible exposure. The employee experience will ultimately remain more or less unchanged in terms of out-of-pocket costs. 

It’s helpful to go through specific claim examples to show employees what the experience will be like. We use Powerpoints, animations, and graphics to show exactly how the experience will be so that employees feel comfortable. We couple this with one-on-one consultations with employees to make sure they have all their questions answered.

Work with an informed partner

Working with an informed partner that has implemented PFAs in the past will help you introduce your PFA seamlessly. For example, at EBS we work directly with our clients, as well as PFA providers, to create seamless, customized communication and implementation campaigns to ensure that PFAs are rolled out as smoothly as possible. This provides a lot of peace of mind to employers who want to ensure that their employees are receiving all of the information they need.

Considering a PFA at your organization

A PFA is a great option for organizations that want to provide high quality health benefits in a more customized way. PFAs allow organizations to pay for the healthcare services that actually get used, rather than paying for a blanketed, expensive plan that is under-utilized. As healthcare plans get more and more expensive year-over-year, PFAs allow employers to continue to provide their employees with comprehensive health benefits, thanks to their flexibility.