What Does It Mean to Self-Fund Your Employee Health Benefits?
Self-funding is a flexible plan in which the employer assumes the financial risk for providing healthcare benefits to its employees. The insurance company manages the payments, but the employer pays the claims directly as they happen.
Self-funded vs. Fully Insured Health Plans
Under a fully insured health benefit plan, an insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid to the carrier by the employer.
Over 60% of employees are enrolled in self-funded health plans
In a self-funded plan, the employer assumes the financial risk and pays their employees’ healthcare claims. Employers can customize plans, engage in risk management, lower costs, and retain profits. To protect the health plan against catastrophic claims, a medical stop loss captive (Employee Benefit Captives) can be an effective way to control costs.
Customize your benefits plan to meet employee needs
Better management and control of cash flow
Access to information and plan transparency
Retain any unused dollars to generate more income
The employer assumes all
of the financial risk
Due to claim fluctuations, adequate cash flow is needed
The employer must be involved in the captive
A 3+ year commitment is needed to reap benefits
What does a self-funded healthcare plan look like?
To create and manage a comprehensive healthcare plan, self-insured businesses will need a strong team.
Health Plan Consultants (Brokers)
A trusted advisor and consultant whose purpose is to advise on how to manage the health plan’s service providers that handle provider and facility claim payment and risk mitigation.
Health Plan Service Providers
Every health plan has two cost centers: medical and Rx costs (variable costs), and administration fees (fixed costs). Generally, a health plan has the following administrative service providers:
- Health Plan Consultants · This individual or team is responsible for ensuring the health plan runs smoothly for both the business and its employees. The consultant is responsible for vetting and bolting on the health plan service providers.
- Third-Party Administrator (TPA) · The benefits administrator handles employee medical and Rx claims for both reporting and funding purposes. A high functioning TPA is critical to the plan’s success.
- Pharmacy Benefits Manager (PBM) · The PBM manages all aspects of Rx utilization. The PBM is the front line defense, as Rx usage is a leading indicator of the plan’s risk profile.
Risk Mitigation/Wellness services
There are many service providers in this space with both a narrow and broad focus approach to medical and Rx cost control. The success of these service providers is largely dependent on each business’ ambition and culture.
Is self-funding right for your company?
Self-insurance can be a flexible, cost-effective alternative to pre-package full insurance health plans, but its not for everyone.
If you are considering this option, consider these questions:
- Do we have a reliable business cash flow?
Due to potential month-to-month claims volatility, properly accruing for the plan’s claim liability is critical.
- Are we willing to engage in risk mitigation tactics?
Although a business will not need to hire staff to manage the plan, the employer must subscribe to ways to control costs and participate in risk management.
- Can we commit to at least a 3-year investment?
It is common for a business to have good years and bad years of risk. Captive insurance companies are not designed to save money immediately, and instead are a longer-term strategic plan for managing risks.