What Is Self-Funded Insurance?
In the past, employers looked to self-funded health plans when traditional insurance programs became less cost-effective. They discovered advantages with this option, such as flexibility with coverage and more personalized benefit plan administration.
With a self-funded (or self-insured) plan, an employer shoulders the financial responsibility of providing health benefits to their employees. They pay for out-of-pocket claims as they are presented, rather than paying a fixed premium to an insurance carrier for a traditional plan.
If you are looking to control healthcare costs, self-funding is one of the most cost-effective options available. Here’s how it works:
Design Your Own Plan
It can model traditional, fully insured plans or you can customize it to the needs of your employees and your budget. Medical coverage is not acquired through an insurance carrier; the employer funds the risk through their assets. The employer is responsible for the benefits being offered and is subject to federal regulation (i.e., ERISA). A benefits administrator who specializes in self-funded plans can make recommendations on the best plan of action for funding and the reconciliation process.
Employers can limit loss with stop loss insurance, protecting themselves from catastrophic claims that could undermine a self-funded plan. Insurance amounts can be determined by the employer’s size, type of business, financial circumstances, and the level of risk they are willing to take.
What are the benefits of a Self-Funded Plan?
No premium tax on self-insured claim expenses. Tax is applied only to the stop loss premium.
Lower administrative costs. Costs for self-insured programs administered through a TPA are considerably lower that those incurred through an insurance carrier.
Eliminate risk charge and in-carrier profit margin.
The TPA provides timely, efficient claims service. ID cards are usually available within 72 hours and employers can be provided with an electronic enrollment option.
Excellent customer service. Employees have access to a toll-free phone number and an exclusive customer service team.
Improved employer cash flow. Money normally held by the insurance carrier as a reserve is now available for use by the employer.
National integrated program of PPO networks.
Control of plan design. Plans can be designed to meet the needs of the employer and the employees, and can be redesigned at any time.
Self-funded plans are regulated by federal legislation only. Mandatory benefits are optional.
Detailed reporting of costs. The TPA provides a monthly detail of costs, by type of medical service and department or location. Fund disbursement journals are be provided electronically, and utilization and lag reports should also be available.
What if we underestimate the cost of employees’ claims?
It’s always a possibility. To protect the company against this happening, many employers purchase stop-loss insurance that kicks in when costs hit a certain level.