Learn how to lower expenses and improve cash flow using a self-funded plan.
What is Self Funding?
What’s the first thing that comes to mind when you hear “group benefit plan”?
Most people envision a traditional fully insured plan, in which the employer pays a premium for a preset plan design. Although the insurer assumes all the risk, it comes with a price—premium includes projected claims costs, overhead, commissions, reserves, risk charges and taxes. In addition to the financial drawbacks, flexibility is very limited.
The alternative is a self-funded plan. Simply put, a self-funded plan is one in which the employer assumes direct responsibility for financing health care claims. This tends to lower expenses and improve cash flow since the employer only pays for health care their participants use. A Third-Party Administrator, or TPA, is usually contracted for claims payment and customer service.
With a self-funded plan, employers gain greater control over plan design. Self-funding allows employers, in consultation with their broker, the flexibility to choose the right benefits to address the needs of the plan and its participants.
Risk mitigation is a primary concern for self-funded plans. As a line of defense against catastrophic claims, the employer can overlay a stop loss, or reinsurance, policy that meets their risk tolerance. In addition, HealthNow Administrative Services (HNAS) brings plan management tools - from in-depth plan reporting to wellness programs - to analyze and improve participant health. These measures work together to manage costs over the long haul.
Why Should Your Organization Self-Fund?
At HNAS, our mission is to partner with brokers and employers to develop a customized, long-term strategy for high quality health benefits while still controlling cost. A premier health plan is still essential to attract and retain top talent, so perpetuity of that program is vital to our collective success. We believe self-funding is the cornerstone for achieving this goal.
Key advantages of a self-funded plan are that it can:
- Lower fixed costs. Administrative fees of a professional TPA are lower than those of large insurance companies.
- Improve cash flow. In fully insured arrangements, the carrier retains reserves to cover potential future expenses. Self-funding allows you to retain funds until needed, which can create additional revenue for the employer in the form of interest.
- Allow control over plan design. You can redesign benefits at any time to address the changing needs of the plan and its participants.
- Eliminate mandatory state-regulated benefits. Since most self-funded plans are subject to the Employee Retirement Income Security Act (ERISA), they are not required to include state mandates.
- Reduce premium taxes. You do not pay taxes—of up to 5%—on your claims fund. Since claims represent about 75-80% of total plan costs, this savings can be significant.
- Eliminate carrier profit margin and risk charge for the bulk of the plan. These charges would only occur in any stop loss insurance purchased for the plan.
- Allow flexibility in value-added programs. Self-funded programs have choices in network partners, utilization management, large case management, subrogation, hospital bill audit programs, and other programs for a full complement of plan-appropriate partners.
