Self-funded health plans are an increasingly popular choice for businesses of all sizes in the dynamic healthcare landscape. This approach, previously limited to large corporations, provides exceptional control, transparency, and cost savings. By directly accessing and analyzing claims data, employers can make more informed decisions that prioritize the health and well-being of their employees. With this additional knowledge, you can better assess your current and prospective benefits solutions to meet your team’s needs.
What is a Self-Funded Health Plan?
Self-funded health plans, also known as self-insured plans, shift the financial risk of employee healthcare costs from a traditional insurance carrier to the employer. This model allows employers to customize benefits to fit their employees’ needs and to implement cost-containment strategies, with the employer directly responsible for claims payment of employee health claims.
How Self-Funded Plans Work
Self-funded plans work by having the employer pay health providers directly only as needed, rather than paying premiums to a health insurance company. The employer pays fixed administrative costs monthly to a third-party administrator (TPA), which handles administrative tasks such as claims processing and reporting. The TPA helps the employer provide benefits and pay health providers directly only as needed. This model represents significant cost savings to a company’s bottom line.
Benefits of Self Funding
Self-funding offers a variety of benefits to consider, including cost savings, greater control over healthcare costs, and more flexibility in designing healthcare plans. Self-funding can help employers reduce their healthcare expenses, improve their bottom line, and provide more transparency in their healthcare costs. Additionally, self-funding can provide employers with more control over their healthcare benefits, allowing them to customize plans to meet their business goals and employees’ needs.
Fully Insured vs. Self-Funded Plans
Fully insured plans are typically more expensive than self-funded plans, as they require employers to pay premiums to an insurance company, which then pays health providers. Self-funded plans, on the other hand, require employers to assume all the risk of claims, but can provide significant cost savings and more control over healthcare costs. Self-funded plans are not limited to large employers, but can be designed for small to midsize companies as well.
Who Is a Good Fit for Self-Funded Insurance Plans?
Self-funded health plans can be an excellent option for businesses of all sizes, as they allow employers to assume financial responsibility for employee benefits, offering customization and cost management advantages. However, they are particularly well-suited for organizations that meet the following criteria:
Financial Stability:
Self-funding requires employers to have a strong financial foundation and the ability to absorb potential high-cost claims. Unlike traditional insurance where employers pay an insurance premium to an insurer who pools these funds to cover health claims and administrative costs, self-funding demands a history of profitability and a solid cash flow.
Predictable Claims Experience:
Employers with a predictable claims history are more likely to benefit from self-funding. This means having a relatively stable workforce and a low turnover rate, which helps in managing claims payments for healthcare services sought by employees.
Commitment to Cost Control:
Self-funding requires a commitment to cost control and a willingness to implement strategies to manage health care costs. This may include initiatives such as wellness programs, narrow networks, and direct contracting with providers.
Access to Data and Analytics:
Self-funding allows employers to access claims data and analytics, which can be used to identify cost drivers and develop targeted cost-saving strategies. By leveraging data and analytics, employers can customize and manage health coverage, ensuring that employees receive appropriate levels of care while controlling costs. Employers who are committed to using data to improve their healthcare plan are more likely to succeed with self-funding.
Desire for Customization:
Self-funding provides employers with the flexibility to customize their health plans to meet the unique needs of their workforce. Self insurance allows for greater flexibility in designing health plans, which may include offering a wider range of benefits, negotiating lower provider rates, or implementing innovative wellness programs.
The Key to Managing Risk: Stop-Loss Insurance
At this point, you’re likely wondering: how would I handle a sudden massive expense? That’s where stop-loss insurance comes in to fill the gaps. It reduces risk for employers by limiting exposure to expensive claims. When claims go over a set amount, stop-loss coverage activates and reinsurance takes over. This protects the employer from huge financial losses, so they can enjoy the cost savings of self-funding without taking on too much risk.
Self-funding has another benefit: savings from good healthcare cost management stay with the employer instead of going to the insurance company’s profits. Employers can use these savings for future claims or even give them back as refunds. This financial control isn’t possible with fully insured plans. On the other hand, carrier-owned TPAs often focus on their own profits, which may not be what’s best for employers or employees.
Understand the Relevant Laws and Regulations
Self-funded health plans are regulated by federal law, specifically the Employee Retirement Income Security Act of 1974 (ERISA). ERISA sets minimum standards for employee benefit plans, including pension plans and health benefit plans, in private industry within the United States. Self-funded plans are exempt from state insurance laws, but must comply with federal regulations. Employers who self-fund their health plan must also comply with the Affordable Care Act (ACA) and other federal laws.