Self-funded insurance plans, also referred to as self-insurance, are a popular type of health care plan in which an employer takes on all or most of the cost of benefit claims. While the employer is responsible for paying the claims, a third-party administrator (TPA) processes them on the company’s behalf.
Self-insured employers pay claims out-of-pocket as they occur instead of paying the insurance company a predetermined premium. Money is generally earmarked in a special trust set up by the self-insured employer to pay incurred claims.
Self-Funded Insurance For Your Business
Self-funded insurance offers a wide range of benefits to businesses. However, it is not right for all businesses. Self-funding is more common among larger businesses due to the level of risk involved. Many smaller businesses do not realize that stop-loss insurance is available to cover any catastrophic or unexpected healthcare costs. For both small and large businesses, self-funded insurance can provide greater flexibility and money-saving benefits.
The Benefits Of A Self-Funded Insurance Policy
There is no one-size-fits-all approach to reducing health care costs. However, self-funded insurance policies can be part of a comprehensive strategy for reducing medical costs. Self-funded insurance is more flexible than traditional, fully-insured health plans and is subject to fewer regulations. Businesses also have the opportunity to customize their health plan to meet the unique needs of their company.
Here is a closer look at some of the other key benefits that insurance can bring to modern businesses:
Employer Has More Control Over the Plan
Self-funded health insurance plans differ considerably from traditional plans by allowing businesses the opportunity to maintain control over the benefits they receive. With a traditional health insurance plan, a business would be forced to choose from a pre-established health plan containing benefits that no one will ever use. However, a self-funded plan can be customized to meet employees’ unique needs, resulting in minimal waste.
Plan Is Not Subject To Insurance Laws And Mandates
Companies that choose to self-fund are not subject to most traditional state insurance laws. Self-insured health plans are exempt from many ACA requirements as the employer assumes the financial risk of providing employees with health care benefits. Self-insured plans are, however, governed by federal laws that are determined by the Department of Labor. This includes the Employee Retirement Income Security Act (ERISA) of 1974 that does not require self-funded employers to comply with state insurance laws and mandates.
Funds Are Retained When Claims Are Low
Setting up self-funded insurance can also have certain financial advantages, such as improved cash flow when employers only pay for claims that are actually incurred. This differs from a fully-funded health plan in which an employer would pay the full premium regardless of the actual claims. Premiums also include a reserved amount to help cover unexpected or catastrophic claims. However, the employer does not receive a refund if these claims never occur. When claims under a self-funded insurance policy are lower than expected, the employer retains the funds.
Less Costly Than Other Options
Cost savings is one of the biggest advantages of self-funded insurance. Suppose a workforce is relatively healthy and does not visit the doctor very often. In that case, an employer’s health care costs will be considerably lower than what they would be under a fully-insured policy. Self-funded employers can also avoid other expenses, such as premium taxes, which are imposed by each state.
Insurance companies often refuse to share price data with employers as this information is considered ‘proprietary trade secrets.’ However, these rules do not apply to self-funded employers. In fact, businesses with self-funded plans can use price transparency to improve contracting with health care providers. With this information, employers are able to determine if they are overpaying for certain medical services and are better equipped to negotiate a fair price for services. In other words, self-funded employers are paving the way for more affordable health care.
Self-funding can also result in other key benefits for businesses, such as in-depth reporting. Self-funded reports help employers better understand where they stand in terms of meeting the health care needs of employees. With this information, they are able to make more strategic decisions about their self-funded plan. Customized plans can also be created to meet the ever-evolving needs of the modern workforce.
Get Started With Your Self-Funded Insurance Plan
Although there are many advantages of this kind of insurance, it is also important to be aware of the potential downsides. Employers face a higher risk of losses due to extraordinary claims, and annual expenses can be unpredictable, resulting in potential cashflow issues. There is also a higher risk of in-house abuse or fraud. Speak with an experienced insurance professional today at New City Insurance to learn more about the advantages of insurance plans.