Self-funding (also known as self-insurance) is a health plan where the employer is paying for their employees’ health care claims. In a self-funded plan, employers set aside money into a “fund” or trust earmarked to pay their employees’ health care claims.
Although self-funding has been used by large employers for decades, smaller employers have been slower to take on that risk — until now. As traditional PPO and HMO carriers continue to break records in profits and growth, employers are starting to view the pandemic as a breaking point and are jumping into self-funding.
When employees don’t seek medical care — whether due to good health or a pandemic — employers don’t retain their savings. The insurer does. With self-funding, employers are rewarded for having a healthier workforce, and as a result, incentive their employees to be healthier. And when employees have the resources, education, and support to maintain their good health, they’re also happier and more productive.
Why choose self-funding?
- Significant savings: Self-funded employers no longer need to pay insurers or pay state taxes on their premiums. And when total health claims are lower than expected, the employer gets to keep their savings, which can be substantial.
- Complete customization: Every employee population is different, and self-funded employers can design their health benefits to suit their unique needs. And because self-funded employers aren’t bound by the network of a traditional insurer, they’re not confined to using a single health system.
- Total control: Another benefit of self-funding is that employers have unlimited access to their data. Analyzing this data helps self-funded employers identify health trends (like common chronic illnesses) within their workforce, unlocking significant cost-savings opportunities.
- Unprecedented flexibility: Within the bounds of ERISA, employers can operate their health plan as they see fit, partnering with any vendor they wish. And by bringing together like-minded vendor partners, employers can save even more by reducing waste and improving their employees’ health.
The risks of self-funding
If the employer does not have proper stop-loss insurance, they expose themselves to the potential financial risk of catastrophic claims. Individual stop-loss helps cover individual claims that exceed a predefined maximum allowed amount per employee, defending against catastrophic claims. Aggregate stop-loss is an additional layer of insurance that acts as a safety net if their total claims exceed expectations.
Lastly, because there’s an additional administrative burden, employers need to work with multiple partners — like a third-party administrator (TPA) — to process their claims and a pharmacy benefit manager (PBM) to administer their prescription benefits.
Is self-funding right for my business?
When your business self-funds, you take on the risks and rewards of paying your employees’ claims.
Employers that choose self-funding aren’t just making a business investment, but an investment into their employees’ health and well-being. Naturally, with that comes an investment of time and resources, but engaged employers that make the switch can expect to save at least 15% on their health care costs in just a few years.
Self-funding smart: The Alliance approach
As the voice for more than 300 self-funded employers, The Alliance finds savings where others can’t — or won’t — using deep data mining and analytics to unlock steerage opportunities. We help you gain total transparency of your claims data, and while other insurers make little attempt to improve network quality, our ever-growing Smarter Networks span more than 34,000 doctors and providers across the Midwest.
Finally, The Alliance is a not-for-profit cooperative that’s owned by its members, which means we focus on your bottom line — not ours.
To learn how The Alliance can help you make the transition to a self-funded plan, contact me.
Director of Business Development
The Alliance
| 608-210-6645
