Almost 70 percent of employers offer a self-funded health plan to their employees and self-funded health plans are growing rapidly.
While larger employers are mostly self-funded, medium sized and smaller firms often avoid the opportunity to have better benefits and save significant money for those better benefits.
Self-funded health plans let employers pay the health claims of employees as they occur, as opposed to fixed premiums throughout the year. In the current employee benefits environment, with a tight labor market and rising healthcare costs, self-funding can improve benefits and reduce costs.
Four common misconceptions about self-funding led many to think it’s not for them.
Misconception one: It is only for large employers or corporations.
While it is true that self-funding has historically been seen in larger employer groups, it’s not the case anymore. A 2021 Kaiser Family Foundation Employer Health Benefits study found that 42% of small firms in the study are now utilizing self-funded health plans.
In terms of seeking advantages from self-funding, a stable employee base (low turnover), a healthy cash flow and better-than-average claims conditions are more important than the size of the employer.
Misconception two: It’s too expensive or there’s too much risk.
Few employers want to assume 100% of the risk—that’s why self-funded employers purchase stop loss insurance. Stop loss insurance reimburses at a pre-determined claims level for an individual, known as specific coverage, or for claims that significantly exceed the expected level for a group of covered persons, known as aggregate coverage.
The total cost of a self-funded plan will include some fixed components, such as administrative fees and costs for stop loss insurance, along with actual claims expenses (less any stop loss reimbursements for the period).
While large, unpredictable claims can be looming, the overall savings from exerting control over (and generating interest from) healthcare reserves, certain state premium tax exemptions and more can be significant. Employers can easily manage the large, unpredictable claims risk with proper stop loss coverage.
Misconception three: Coverage isn’t the same.
Coverage can be better. Rather than being boxed into one-size-fits-all plans, employers can customize their benefit plan design when using the self-funding model. This helps them meet the needs of their workforce. Under a self-funding model, employers can also contract with providers and provider networks they choose.
Misconception four: It’s too complex.
Self-funding does not mean you have to do it yourself. CareMoat has the expertise to guide employers sponsoring a self-funded plan. CareMoat will recommend a third-party administrator (TPA) to manage the plan and the costs, as well as a stop loss carrier to provide stop loss insurance.
As with any partner you do business with you want to have confidence in their experience and expertise.
Recent figures from the U.S. Bureau of Labor Statistics show that employee benefits account for about 30% of total employee compensation—making it the second biggest employee-related expense after wages. Don’t let misconceptions about self-funding stop you from considering it as an option for your business.
Information from Fortune / M