Each year employers evaluate healthcare plans and analyze ways to contain healthcare associated costs. As employers, its important to stay at the forefront of current insurance trends, keeping in mind the overall health of your employees and the financial wellbeing of your organization as a whole.
One innovative new approach to health coverage is the self-funded benefit plan. Self-funded plans are becoming increasingly popular due to their potential cost savings and flexible plan design.
What Is a Self-funded Plan?
A self-funded plan is one in which an employer retains the responsibility and related financial risk of providing healthcare benefits to its employees. Within a self-funded plan, employers can also purchase stop-loss coverage, which places a ceiling on financial risk, protecting employers from high claims. Employers pay out-of-pocket expenses instead of transferring the risk and paying a fixed premium to an insurance carrier.
One of the biggest drawing points of self-funded plans is that they can be customized by each employer to meet the specific healthcare needs of its workforce, as opposed to purchasing a fixed plan. Small and mid-sized companies gain the same advantages as their larger counterparts when implementing a self-funded healthcare plan because it provides them with financial and administrative control, improved cash flow, and plan flexibility, while still providing the best access to healthcare benefits for employees.
Cost Savings
Under a self-funded plan, companies pay as they go without worrying about paying premiums or pre-funding claims costs. Companies pay claims as they are incurred, allowing them to invest and receive returns on unused funds. Additionally, self-funded health plans are liable for state taxes only on stop-loss premiums, while fully insured plans are liable for state premium taxes on total plan cost. According to industry experts, this disparity results in direct, automatic savings to a company that self-insures. These savings are estimated to be two to three percent of the premiums’ dollar value.
Flexibility
The flexibility of self-funding allows a company to custom design a cost-effective health plan tailored to its employee base. With the help of experienced plan design specialists, a company can identify additional cost-savings opportunities while custom building a plan that supports corporate objectives and offers a range of options to match the needs of a diverse workforce.
To develop a more cost-effective plan, companies can exclude or limit benefits (while still meeting employees’ needs), offer alternative health plan options, cover alternative treatment procedures, and design prescription drug plans that provide cost savings opportunities. This helps to drastically reduce risk, while still providing employees with quality healthcare benefits.
Administrative Control
Administering a health plan helps companies operate efficiently and effectively. Having administrative control allows employers to make continual improvements and detect areas where modifications of systems and processes can be made, with the goal of optimizing plan performance, improving employee satisfaction, and, ultimately, saving money.
Additional Ways to Reduce Cost and Risk
To help further reduce costs, companies can also implement corporate wellness programs which offer employees incentives such as reimbursements for participation in health screenings, weight loss, and smoking cessation programs, and also offer online education and decision support tools.
Wellness programs encourage employees to lead healthy lifestyles, while providing cost-saving solutions. Other programs that manage healthcare costs are available to help alleviate spending for employers. These programs assist companies in managing costs by evaluating medical spending, plan design, and individual consumer behaviors to promote overall member health and financial stability for employer health plans.
Stop-loss coverage protects self-funded companies from high claims by putting a ceiling on financial risk. Specific stop-loss coverage protects a company against accumulated claims that exceed a specified amount on a per-patient/family basis. Aggregate stop-loss protects a company against accumulated claims that exceed a specific ceiling. The stop-loss insurer is responsible for any claims above the ceiling.
Challenges of Self-funding
Large companies with ample financial resources and internal expertise in benefits administration are commonly considered ideal candidates for self-funding. When small and mid-sized companies explore the potential benefits of self-funding, they may encounter challenges not faced by larger corporations. Some may find self-funding challenging due to a lack of internal resources to manage and administer the plan, and due to large cost fluctuations resulting from the unpredictability of the timing of claims. There's an inherent risk in self-funding; however, it can still work for employers of various sizes if they enlist the help of a benefits administrator to manage the plan, deliver human resources with online tools to ease administration, provide educational tools for employees, and employ stop-loss coverage to help mitigate financial risk.
To Learn More
To see if self-funding is a good fit for your organization, you should consult a specialist in healthcare benefit design. An experienced plan design specialist can help a company explore the positive aspects of developing a health benefits program with multiple plan options, including consumer-directed health plans and traditional PPO plans, and assist in obtaining stop-loss coverage.
Self-funded plans provide an employer with more control over the benefits it provides employees and reduce costs without sacrificing quality healthcare benefits. Additionally, implementing wellness programs and cost management strategies in tandem with a self-funded plan provides additional benefits for both employers and employees, reduces costs for companies, and creates happier, healthier employees.
About the Author
David C. Parker is the senior vice president of sales for Meritain Health, the country’s largest independent provider of services for self-funded health plans. For more information, call 1-800-242-6226 or email sales@meritain.com.
