As the first month of 2018 wraps up, com­pa­nies have already begun the ardu­ous task of sub­mit­ting bud­gets and find­ing ways to cut costs for the new year. One of the most effec­tive ways to com­bat increas­ing health care costs for com­pa­nies is to move to a Self-Fund­ed insur­ance plan. By pay­ing for claims out-of-pock­et instead of pay­ing a pre­mi­um to an insur­ance car­ri­er, com­pa­nies can save around 20% in admin­is­tra­tion costs and state tax­es. That’s quite a cost savings!

The top­ic of Self-Fund­ing is huge and so we want to break it down into small­er bites for you to digest. This month we want to tack­le a basic intro­duc­tion to Self-Fund­ing and in the com­ing months, we will cov­er the ben­e­fits, risks, and the stop-loss asso­ci­at­ed with this type of plan.

THE BASICS

  • When the employ­er assumes the finan­cial risk for pro­vid­ing health care ben­e­fits to its employ­ees, this is called Self-Funding.
  • Self-Fund­ed plans allow the employ­er to tai­lor the ben­e­fits plan design to best suit their employ­ees. Employ­ers can look at the demo­graph­ics of their work­force and decide which ben­e­fits would be most uti­lized as well as cut ben­e­fits that are fore­cast­ed to be underutilized.
  • While pre­vi­ous­ly most used by large com­pa­nies, small and mid-sized com­pa­nies, even with as few as 25 employ­ees, are see­ing cost ben­e­fits to mov­ing to Self-Fund­ed insur­ance plans.
  • Com­pa­nies pay no state pre­mi­um tax­es on self-fund­ed expen­di­tures. This sav­ings is around 1.5% — 3.5% depend­ing on in which state the com­pa­ny operates.
  • Since employ­ers are pay­ing for claims, they have access to claims data. While keep­ing with­in HIPAA pri­va­cy guide­lines, the employ­er can iden­ti­fy and reach out to employ­ees with cer­tain at-risk con­di­tions (dia­betes, heart dis­ease, stroke) and offer assis­tance with com­bat­ing these health con­cerns. This also allows greater pop­u­la­tion-wide health inter­ven­tion like weight loss pro­grams and smok­ing ces­sa­tion assistance.
  • Com­pa­nies typ­i­cal­ly hire third-par­ty admin­is­tra­tors (TPA) to help design and admin­is­ter the insur­ance plans. This allows greater con­trol of the plan ben­e­fits and claims pay­ments for the company.

As you can see, Self-Fund­ing has many facets. It’s impor­tant to gath­er as much infor­ma­tion as you can and weigh the ben­e­fits and risks of mov­ing from a Ful­ly-Fund­ed plan for your com­pa­ny to a Self-Fund­ed one. Doing your research and mak­ing the move to a Self-Fund­ed plan could help you gain greater con­trol over your health­care costs and allow you to design an orig­i­nal plan that best fits your employees.