There is no one-size-fits-all approach to health insurance, but self-funded insurance can be a cost-effective option for some businesses. A self-funded or self-insured plan is one in which the employer assumes the risk of providing health care benefits to employees.
Self-funding is an alternative to traditional fully-insured plans that require a company to pay a premium to an insurance carrier. Under a self-funded plan, the employer calculates fixed and variable costs. To limit risk and keep expenses within an affordable range, businesses use stop-loss or reinsurance to cover claims that exceed a predetermined level.
Should Your Company Consider Self-Funded Insurance?
Companies that seek a more consistent cash flow and greater flexibility should consider self-funded insurance. Some companies are better set up for self-funding than others based on factors like budget, the number of employees and employee health needs. While self-funded insurance is more common among larger companies, a growing number of small and mid-sized employers are opting to self-insure their employee health plans.
Businesses That Should Consider This Policy
Today, 15 percent of small businesses and 52 percent of mid-sized companies are covered by self-funded insurance plans. Medical care, dental, vision, short-term disability (STD) and prescription drugs are some of the most common insurable benefits offered by self-insured employers.
Self-funded insurance is not right for all businesses, especially companies not willing to assume the increased legal and financial risks. The following groups may benefit from becoming self-insured:
Employers Seeking Greater Control Over The Plan
Self-funded insurance plans provide employers with greater control over what the plan includes and the costs of these services. Self-funded businesses are rewarded for plans that perform well through low premiums and other savings. Self-funded plans have a large capacity for customization, allowing employees to get the care they need while visiting affordable providers.
Companies With At Least 50 Employees
Self-funded insurance is generally recommended to larger businesses that have the cash flow necessary to maintain a sizable trust fund. Businesses that self-fund should have at least 50 employees but this is not a requirement, especially among businesses that choose partial self-funding.
Partial self-funded plans may be better suited for smaller companies. Also, known as level-funded insurance, these plans can be a competitive option for groups with as few as five employees. Partially-funded plans are a hybrid of fully-insured and self-funded plans and are generally administered by a major health insurance carrier. Employers pay the carrier a premium each month, but unlike a fully-insured plan, employers are eligible for refunds for unused dollars in their claims funds.
Why Are Businesses Switching To Self-Funded Insurance?
Large employers predict that their health benefits costs will increase by 5.3 percent in 2021, according to a recent survey by the Business Group on Health (BGH). To better control rising costs, many employers are switching to self-funded health insurance.
There are many reasons why businesses make the switch to self-funded insurance, including the following key benefits:
The cost-savings of self-funded insurance can be significant. According to the Self-Insurance Educational Foundation, the cost savings for non-claims expenses alone range from 10 to 25 percent.
Under a fully-insured plan, 100 percent of the costs are fixed and paid to an insurer. However, self-funded plans are split into three main buckets: administration costs, reinsurance and claims funds. When businesses keep claims low, they can enjoy greater savings.
There is no potential to receive a reimbursement for money put towards claims with a traditional fully-funded plan. With self-insured insurance, the business controls the trust fund and only pays out what is required to cover the claim.
Easier Cash Flow
Businesses are always looking for new strategies to protect their business’ cash flow, especially in times of economic downturn. Moving from a traditional fully-insured plan to self-insured insurance can have a positive influence on cash flow by only paying for claims that are incurred.
Under a fully-funded plan, the employer must pay the full premium regardless of actual claims. Premiums also include reserved amounts to cover unexpected claims. If these claims never materialize, the employer does not receive a refund. With self-funded insurance, employers can enjoy savings when claims are lower than anticipated.
Improved Employee Coverage
When businesses gain greater control over their employees’ health insurance, they can customize coverage based on employee needs. Without this control, companies are legally required to meet state mandates that dictate how much coverage employees need. Self-funded employers can save by avoiding the cost of complying with state-mandated benefits. Customized coverage can also increase employee satisfaction and retention.
Work With Our Knowledgeable Self-Funded Insurance Team
The knowledgeable team at New City Insurance has helped countless companies of all sizes find health insurance plans that best align with their business goals. To learn more about self-funded insurance and whether it is the right choice, speak with the self-funded insurance team at New City Insurance.