Self-Funding
Self-funding is an insurance strategy used by businesses as an alternative to traditional (fully insured) business insurance. Many small businesses are considering Self-Funded plans as a way to lower their spending and regain control over their benefits. According to a study by the RAND Corporation, small business is expected to drive growth in the self-funded market resulting in an increase of companies with less than 100 employees covered by a self-funded plan growing from 4 percent to an impressive 33 percent.
What is Self-Funding?
There are many forms of “self-funded” or “self-insured” plans. Said simply, it is the form of the company contributing toward the employee’s cost of care. Smaller companies will usually protect their losses with “stop-loss,” which is similar to having a high deductible plan, and funding the deductible only when necessary.
When a business offers self-funded insurance benefits to employees, the business accepts direct responsibility for all covered individuals’ healthcare expenses. Instead of purchasing a plan from an insurance company, the employer creates its own plan, collects employee premiums and pays covered claims from a specific account that has been set aside to pay insurance expenses.
What is Level-Funding?
Many companies prefer to know what their costs are every month. A self-funded plan can be set up as “level-funded” meaning you would pay a pre-determined premium every month, similar to fully insured programs. Premiums are funded as if employees are going to hit expected claims, however at the end of the year if claims are less than expected, the excess remains with the employer, increasing company profit margins or offsetting future healthcare premiums.
Advantages
- Company retains 100% of excess claims reserves
- Avoid several costly ACA fees and mandates (1-3% savings)
- Protect tiered rating structure for companies with 50-100 employees (small group expansion will bring member level rating to these companies)
- Not subject to 10 essential health benefits mandated by the Affordable Care Act
- Company chooses benefits and providers
- Lower premiums for healthier groups, as opposed to paying for your neighbor’s claims
- Population Health Management can be built in to provide better care for chronic disease
- Leveling of premiums
- Ease of administration and employee experience
Disadvantages
Self-funding isn’t appropriate for all employers. For example, employers with a small number of employees may decide against self-funding because their pool of insured parties isn’t large enough to merit the assumed risk. It is best to do a free Health Risk Assessment to determine if it is an appropriate time to go self-funded, or what measures would need to be taken to lower the risk of your company.
Many employers feel that because they have several chronic conditions within the group that they won’t qualify, however herein lies the opportunity to learn about chronic disease management, doctor cost and quality, and various employee incentives and resources to improve the health and experience of the group.
Lastly, it is important to work with a broker and plan administrator that have the experience and resources to protect your group, manage claims, and improve health of your population. There are many “packaged” or “bundled” or “ASO” self-funded programs that are entering the market as entry level programs. While these programs are mainstream and easy to get into, there are usually high administrative fees behind the scenes, limited resources for claims management, and limited flexibility with plan design and provider options. These “bundled” programs may last only short term because of the limited flexibility in addressing the cost drivers.
If you are considering self-funding for your company, it’s best to consult an insurance professional to decide whether this insurance strategy is right for you. Contact Bender Insurance Solutions today to learn more about the pros and cons of self-funding.
