As mentioned in a prior article, self-funding an employee benefit plan as a long-term strategy to save money works because it does afford an awesome opportunity for an employer to achieve savings plus cost control. Over history, the smaller employers, those traditionally under 250 or even 100 employees, have been hesitant to self-fund their health plan as in the past it was commonly believed that self-funding was only appropriate for “large groups.” Our previously owned third party administrator (TPA), Group Administrators, Inc., survived and flourished on companies with less than 250 employees and several with down to 25 employees. We were able to establish the right plan design, the correct specific deductible amount as well as placement of an aggregate coverage, often paired with a monthly accommodation feature, that allowed our clients to be confident in their determination that self-funding was in fact a formula for success.
The purpose of this article is to allow you to gain some insight into the key determining factors to consider for your company when deciding if self-funding is a viable option for you. The right health plan can and should be an integral part of the proper growth and success of your company, the wrong one can have very negative impacts. We believe you can offer the benefits much larger companies offer, taken down to a proper scale, to benefit you, the small employer.
A self-funded plan affords all groups, regardless of size, the opportunity for savings. You have the opportunity to pay your own claims, while a TPA administers the claims, processing them, issuing ID cards, handling the tasks that the insurance companies typically do. The difference: they hire a “stop-loss” carrier on your behalf to take on a large piece of the risk, leaving you with the risk under the stop-loss amount. Your company pays for the everyday claims, the stop-loss carrier is there to protect you from the run-away claims. If designed properly, you know exactly what your risk is from one year to the next, and oftentimes, from one month to the next. Again, if designed properly, your risk should line up with what you were paying in a fully insured environment.
Obviously there is now some incentive for the employer and employees to be involved in the delivery of health care: cost savings. Wellness programs, HSA’s, consumer-driven health plans with high deductibles paired with programs allowing employees to participate in their own comparison shopping on their respective providers or hospital charges before they are incurred — all are great ideas to incorporate to save money on the overall health plans that we design.
Self-funding also aids the employer in knowing what and where you are paying for delivery of care. Wouldn’t you like to be able to dig into the amount your company is paying toward emergency room visits, or specific drug costs? How about the overall cost for in- and out-of-network claims, or wellness visits? Self-funding will afford you the opportunity to see exactly where your health plan dollars are spent month-to-month, giving you the chance to make informed decisions moving forward at renewal regarding benefit changes or employee contributions. You can tailor the benefits to meet your specific group’s needs. Employers with self-funded health plans see exactly how the plan performs, thus removing the element of surprise at renewal as it relates to substantial increases or decreases in premium.
With over 30 years of experience in the self-funding arena, we welcome the opportunity to discuss the concept in further detail. Please visit our contact us page to schedule a more in-depth discussion.