Own your health plan.
What does Partially Self-Funded Health Insurance mean?
When an employer chooses a self-funded group health insurance plan (aka a ‘self-insured’ plan or partially self-funded health insurance) the employer assumes part of the financial risk for providing health care benefits to its employees, while stop-loss insurance covers the remaining financial risk beyond the employer’s tolerance level. In simplistic terms, self-funded employers pay for each out of pocket claim as they are incurred instead of paying a fixed premium to an insurance provider. What most people are used to is the fully-insured platform where a set monthly premium is paid regardless of usage. Typically, a self-funded employer has a special trust account set aside money to pay incurred claims. Funds to this account come from both the company and employee contributions.
What are the attractive features of a Self-Funded Health Plan?
- Flexibility: The employer can customize their health plan to meet the specific healthcare needs of its employees, as opposed to purchasing an insurance policy that is generically designed.
- Freedom: The employer is free to contract with any provider and/or network that is best suited to meet the healthcare needs of its employees.
- Control: More dollars in the bank instead of in the insurance companies’ pockets. The employer manages its health plan reserves account – allowing them to earn interest income – dollars that would be otherwise be used by an insurance carrier through the company’s paid premium dollars.
- Improved cash flow: Since the employer no longer pre-pays for its health coverage, that money is generally available for company use.
- Federal Rights: Self-funded health plans are regulated under federal law (ERISA) which overrides state-mandated health benefits requirements.
This is a basic chart of costs associated with a partially self-funded health insurance plan vs. costs typically associated with a traditional, fully-funded plan.
Other attractive features to a partially self-funded insurance plan:
- More savings! The employer is exempt from state health insurance premium taxes, which can be around 2-3 % of the premium’s dollar value.
- No Risk Pool: No longer in a health insurance risk pool which adds a specific fee to monthly premiums based on occupational risks instead of the actual peoples’ risks in your company.
- No overhead: No longer paying the insurance carrier’s overhead costs with your hard earned dollars.
For many healthy companies, healthcare premiums far exceed the actual usage or claims made by its workforce annually. Do you think the insurance companies return the unused portion to employers at the end of the year? Ah, no. That all goes into their annual profit. With a self-funded plan that potential profit to the carrier is in the employer’s own health reserves account accruing interests.
There is a little more to a partially self-funded insurance plan and methods to safeguard a company against large claims that we will discuss in more detail in future posts.
If you would like to see if a partially self-funded insurance plan is right for your company – contact us today and let us help you decide.