Health care costs are continuing to rise and many businesses are looking for ways to control costs without diminishing health care access for their employees. Although there is no one-size-fits-all approach to obtaining affordable health care, many employers are finding self-funding insurance models to be a more cost-effective strategy compared to traditional, fully insured plans.
Companies that choose to partner with their insurance companies can enjoy more flexibility, long-term savings, and budget-friendly caps that help control costs. Learn more about self-funded insurance and why so many employers are making the move towards self-funded insurance models.
Why Businesses Choose Self-Funding Insurance
There are several reasons why many employers are moving from fully funded health insurance to self-funded plans.
1. More Flexibility
Self-funded health insurance plans provide more flexibility to employers. These plans are not subject to certain state requirements and at the end of the plan year, the business can get some money back. Self-funding also enables companies to better meet the unique needs of their workforce and control the terms of the plan to ensure that employees are satisfied with their benefits.
Employers also have the opportunity to work with a third party administrator (TPA) to customize their benefits. A TPA is a type of entity that processes or adjudicates claims for employee benefits plans.
2. Cost Savings
Every business wants to save money and changing health care plans is one way to achieve this goal. When self-funded employers partner with an experienced third party administrator (TPA), they can save money on their health plans for each person who enrolls.
TPAs work directly with businesses to manage health plans that meet the unique specifications of the employer instead of an insurance carrier’s policy. Employers can also save through individualized plan management that eliminates gimmicky “discounts” and other types of marketing schemes.
3. Increased Cash Flow
One of the biggest reasons that employers are making the move towards self-funded insurance models is to improve their cash flow. Traditional health insurance plans require employers to prepay for any potential claims that may arise through monthly premiums.
However, a self-funded health insurance plan allows for better control over cash flow as employers are only required to pay claims when the services are actually rendered. Greater control over cash flow can often lead to extra savings for businesses.
4. Reduced Premiums
Employers that choose self-funded health insurance do not have to pay full state premium taxes. These taxes typically range from 2 to 3 percent of the monthly premium cost and can drop significantly with self-funded plans. Insurance companies are typically charged state taxes on collected premiums, but with self-funding, premiums are only collected with excess loss coverage.
As the cost is just a fraction of the standard insured premium, employers pay significantly less when they choose self-funded plans. Businesses can also save in other ways, such as by eliminating risk and retention fees.
5. Customized Plans
What makes self-funded health plans truly unique is that businesses have the opportunity to customize them to meet their needs and the needs of their employees. Employers have the option to contact providers directly, contract directly with provider networks, negotiate claims, and select pharmacy benefit managers that are best suited to meet the unique health care needs of employees.
Schedule A Consultation About Self Funding Insurance New City Insurance
Although self-funded insurance models have many benefits, they are not right for every business. Since self-insured employers must assume the risk of paying employee health care claims, they must have the financial resources to meet these ongoing obligations, which can sometimes be unpredictable. Companies with poor cash flow may find that self-funding is not a suitable option for their organization.
Working with an experienced employee benefits consulting firm can help ensure that employers make the best decision for their business and workforce. To learn more about why employers are moving towards self-funded insurance models or to schedule a consultation with an employee benefits consultant, contact New City Insurance.