According to a recent Kaiser Family Foundation Study, employer-sponsored insurance plans covered almost 159 million nonelderly people in 2022. Out of those covered workers, 65% of were enrolled in a self-funded plan.
The average family premium has increased 20% since 2017 and as costs continue to rise, employers need alternatives to traditional fully-insured health plans. With added control, access to more data and lower costs, self-funded plans are growing in popularity among employer groups of all sizes.
In this blog, we will explore the basics of self-funding and points to consider when you’re evaluating the plan options available to your business and its employees.
Self-Funding vs. Fully-Insured
In a self-funded plan, the employer pays for their own medical claims and a third-party administrator (TPA) administers the health plan by processing claims, issuing ID cards, handling customer questions and performing other administrative tasks.
In a traditional fully-insured plan, the employer purchases a contracted health plan that assumes financial responsibility for enrollees’ covered medical claims costs.
Depending on your company’s unique situation and needs, either of these may be practical options for an employer-sponsored health plan.
How Does Self-Funding Work?
Employers who opt for a self-funded plan assume direct responsibility and risk for the payment of the claims for benefits.
A self-funded plan is essentially a “pay-as-you-go" approach to claims. The cost of claims will vary month-by-month based on plan usage among covered employees. With self-funding plans, employers have a better idea of actual costs but this needs to be managed closely. It is important to work with a knowledgeable and experienced benefits advisor to arrange and review plans to be sure the plans include appropriate Stop-Loss protections.
What is Stop-Loss Insurance?
Stop-loss insurance is insurance for your plan—it provides you with protection against catastrophic or unpredictable losses when self-funding. It allows you to not assume 100% of the liability for losses that arise from plan administration.
There are two types of stop-loss insurance—aggregate and specific.
Aggregate stop-loss coverage limits financial liability for the total amount of claims expense.
Specific stop-loss coverage limits financial liability for each individual member covered by the plan.
How does a self-funded plan work for my employees?
Besides the possibility of new carriers, networks and ID cards, everything else will run similarly. Employees will contribute monthly to the plan and utilize care as they normally would. Working with your benefits advisor, you can create a plan that would work smoothly with minimal disruption for employees. And with premium savings, group administrators can enhance the employee’s experience by adding concierge-level services.
What Are the Benefits of Self-Funding?
Self-funding has several benefits that have encouraged employer groups to make the switch.
Plan Flexibility & Customization
Self-funding allows for more flexibility in plan design to meet the needs and challenges of your employee population. Many of these plans are also not subject to certain state requirements.
Control & Transparency
With access to more of your plan data, you’re able to gain a clear understanding of where your money is going and how it is being spent. This will allow you to adjust and make enhancements moving forward.
Savings
Rather than paying the full premium each month whether the plan is being used or not, you are only paying for when the plan is utilized. When anticipated claims are lower, the savings on those claims can be yours to keep. Additionally, there are several ways self-funded plans allow you to save on premium tax costs.
How Do I Know If Self-Funding Is Right for My Company?
With the rising cost of health insurance premiums, many employers are looking for a way to control costs without reducing the options available to employees.
If you are looking to have more control over your healthcare costs and are willing and able to take on the financial risk, you can start considering a self-funding plan for your employer-sponsored healthcare benefits.
Are there group size or participation rate requirements for self-funding plans?
Self-funding is no longer just for large employer groups. Since the start of self-funding plans, innovative offerings have been put into place, and they are designed to make these plan options a competitive possibility for small group employers too. It is best to work with an experienced benefits advisor to weigh all of the options available to you.
What if I am new to offering an employer-sponsored health plan?
Initially, it is best to get started with an insured health plan. To be considered, you need an expansive amount of data from previous years from your employer-sponsored health plans to make an informed decision and properly structure your self-funding plan. If you are interested in offering your employees a health plan, our team can help you evaluate your options.
How do I get started with self-funding?
If you are interested in offering your employees a new health plan, our team can help you evaluate your options before switching from your current plan. The best places to start is taking a deep dive into your current health plan data available to you and evaluating your top drivers of costs, how employees are using the plan and finding ways you can save.
It is important to understand the financial risks and benefits of a self-funding plan and the best place to start is with a trusted benefits advisor, like Ascela.
Our team of experts can do a full evaluation to determine if a self-funded health plan is right for you—contact our team today.