Self funded insurance plans are an increasingly popular option among employers who are looking to regain control of their benefits program. They offer many benefits over traditional fully insured plans, including lower administration costs, greater flexibility and financial accountability.
What Is a Self Insured Health Plan?
A self insured health plan is an arrangement in which the employer pays claims for healthcare services using a combination of its own funds and enrollee contributions. The funds are then deposited in an account that will pay claims. An employer will typically use a broker or TPA to oversee the process and make sure the plan is right for employees and business budget.
What Is A Self Funded Insurance Plan?
A selffunded insurance plan uses the money of an employer to pay for medical services. This is an ideal option for smaller business owners, who can manage their expenses. You can use it to cover dependents of employees that do not have any other coverage options, like Medicare or Medicaid.
What is an Self-Funded Plan?
A health plan that includes a self insured component sponsored by the employees and a contract for group health coverage with an outside carrier. A TPA is often contracted by the employer to handle administration of the self insured components.
The employer's administrative costs are largely comparable to those of a fully-insured plan. The only difference is that self-funded claims are billed month-to-month and not annually like fully insured claims. These monthly costs consist of administrative fees and stop-loss insurance premiums as well as the variable cost for healthcare, otherwise known by the term claims expense.
Shock Claim Risks are Real in Self-Funding
Shock claims, as the name implies are catastrophic claims large enough to derail self-funded plans. These large claims may easily exceed half-a-million dollars for healthcare treatment of an individual over several years. The financial impact of shock claims on an employer can be significant, as they drain reserves and can cause negative cash flow.
Understanding Self-Funded Health Insurance
Although self-funded plans have many advantages, they may not be right for everyone. Employers worry about high-cost claims, so it is crucial to weigh the pros and con before choosing a plan.
With a self funded health plan, employers can select the most cost-effective benefit package to offer their workforce. They also have the ability to improve employee wellness and reduce costs. The employer can also be more involved with population management strategies such as weight loss or smoking cessation programs. Small and midsized businesses can use this option to lower their health care costs for employees, encourage healthy habits and improve the quality of healthcare for their employees.