Gaining popularity similar to it’s peak in the early 1980’s, self-funding is making a comeback. Many brokers / advisers are not well versed in this concept, and therefore are less likely to present the approach to clients. One point they will also likely not share with clients: commissions are paid on the stop loss premiums, not the entire premium amount.
There are reasons to consider self-funding that typically outweigh the reasons not to self-fund. Most importantly, you should be working with an experienced adviser. One who works with self-funded clients day-in and day-out. An adviser who has relationships with a number of Stop Loss Carriers, Third Party Administrators (TPAs) and Pharmacy Benefit Managers, just to name a few.
The first point to consider – self-funding is not a “one year” solution. I do not recommend self-funding to any of our clients if they are not willing to commit to an overall 3-5 year plan. Typically the concept is a win for the client on average four out of five years, but you must be prepared for the bad along with the good.
Additionally, the size of the group should not deter your group from exploring self-funding as an option for your plan. I hear many of my peers say a group has to be at least 200 or 100 employees to consider self-funding, and that is just not true. If a client is financially stable and the adviser understands and communicates all risks involved in the contract, self-funding can be offered successfully as an alternative for clients with as few as 20-25 employees. Some of our clients in the range of 25 employees have been self-funded for over ten years, and are very happy with the stability of the rates over that time period.
Many smaller to mid-size clients should consider a closer look at self-funding due to some distinct advantages under the Patient Protection and Affordable Care Act (PPACA).
This is the first in a series of posts that will focus on the concept of self-funding. With 30+ years experience in all things self-funded, we have a lot to share. We welcome questions and hope those who read will learn something. Continue to follow us for more information coming soon.