Companies want to provide health insurance benefits to attract and retain the best employees. But rising health care costs have led to expensive group insurance plans and smaller company profits.
One appealing solution is a self-funded health care plan, sometimes called a self-insured or partially self-funded health care plan. Offering many benefits to companies, these plans often become a game-changer. Self-funded plans don’t just stem the rising cost of healthcare; they cut it—sometimes dramatically—while providing the same or better benefits to employees.
In a self-funded health care plan, the employer assumes the financial responsibility for providing health care benefits to its employees, paying claims as they are incurred up to an agreed upon amount instead of paying a fixed premium to an insurance carrier. This type of plan creates a strong free cash flow in an economy where that’s a rarity.
Additionally, these plans—once the domain of large Fortune 500 companies–are increasingly a viable option for smaller companies. A study from the Employee Benefit Research Institute found that about 59 percent of private sector workers with health coverage were in self-insured plans in 2011, up from 41 percent in 1998.
Here are the 3 components of self-funded health care insurance plans, all which help you manage your cash flow better and gain greater control over this core employee benefit.
Plan design is flexible and within the employer’s control. The employer determines the provider, network, co-pays, deductibles, co-insurance, what is covered and what is excluded. Self-funded health care plans are covered by ERISA and are not subject to any conflicting state health insurance regulations and benefit mandates or state health insurance premium taxes.
Fixed costs include claims administration, specific and aggregate stop-loss premiums, network access fees, utilization review fees and consultant compensation. A third-party administrator processes claims and provides customer service for the participating employees. Stop-loss insurance pays your employees’ medical bills after you have paid a certain predetermined amount and protects the employer from catastrophic losses. This effectively limits responsibility for any one person’s claims to a specific dollar amount and the overall liability for the group as a whole.
Claims or Variable Costs.
The employer is responsible for claims up to the agreed upon limits under the stop-loss contracts plus any run-out claims. Claims are the primary opportunity area for employer savings. If the employer’s claims are less than the maximum, the employer retains the excess—not the insurance company. It is this part of the plan that can be improved over time, ideally from 3 to 5 years. Companies regularly save $50,000, $300,000 or more per year, keeping fixed costs as low as possible and a fairly flat curve for claims over time.
One of the biggest advantages of self-funded plans is the transparency of claims data. Self-funded employers who contract a third-party administrator receive a monthly report detailing medical claims and pharmacy costs. Knowing this information becomes instrumental in controlling costs by shifting buying patterns.
Thayer Partners offers companies assistance in health and benefits plan design, recommendations of competitive third-party administrators, and the placement of stop-loss insurance.