Introduction to Self-Funding
Many large employers have self-funded their health plans to attract and retain employees and better control the cost of providing employee benefits.
Self-funding treats predictable medical claims as an expense, rather than an insurable item. As a result, immediate cost savings are generally realized by elimination or reduction of premium taxes, lower administrative charges and risk charges.
The concern that a plan could face unlimited liability as a result of excessive claim costs due to such events as catastrophic illness, epidemic and unexpected high incidence of claims is dealt with by stoploss insurance policies. With stoploss, the employer knows at the beginning of the benefit year what the maximum cost could be under self-funding, just like a full insured plan.
This alternative funding method gives the employer the ultimate flexibility and control to manage and oversee employee benefit plans. The employer has total control of the plan design, selection of highly specialized vendors. These partners are empowered to manage costs and keep employees happy.
Three Reasons to Consider Self-Funding
Reserves: When a self-funded plan replaces an insured plan, the current carrier (if fully insured) usually continues to pay claims already incurred but not reported prior to contract termination. These claims are paid out of reserves accumulated from insurance premium payments. This creates a time lag until the employer has to start self-funding new claims. During this period, employers can set up an internal reserve cushion for monthly claim fluctuations or other liabilities.
Good Year Benefits: The effects of good claims experience has a direct impact on the employer. Yearly rates increase and decrease based solely on claim experience, not that of other employers.
Lower Costs: Many self-funded employers experience lowered costs in a variety of areas, such as
- Improved efficiencies in claims processing by independent administration
- Elimination of risk charges
- Reduction of initial expenses
- Select only those services needed by the company
- Investment income earned on reserves
- The plan keeps the insurance companies profit