Insurance plan

Should your business consider a self-funded health insurance plan? by Dane Scalise

Everyone should have health insurance, but it is undeniable that health insurance is very expensive for companies and employees. Like any other item in your budget, you would obviously rather pay less than more for health insurance without sacrificing quality. Fortunately, there are indeed various methods to achieve this desired result. For example, you may have heard of other companies that have chosen to self-fund their health insurance. but what does that mean exactly? And would self-financing be right for your business? These are big questions, but I try to give a brief overview of self-financing health insurance in this article.

Under a fully insured health plan, your company pays a monthly premium to a health insurance company (for example, Aetna, Blue Cross Blue Shield, Cigna, FirstCarolinaCare, and UnitedHealthcare). In exchange for this monthly premium, the health fund undertakes to cover the health costs incurred by your employees. One of the benefits of this type of health plan is that you know exactly what your plan will cost each year, because you can simply multiply your monthly premium payment by twelve. However, a potential downside of a fully insured health insurance plan is that even if you and your employees are in very good health and/or don’t incur a lot of health care costs, the health insurance company won’t reimburse you. usually not for saving their money.

A self-funded health insurance plan, on the other hand, attempts to resolve this dilemma in your favor in exchange for assuming controllable and customizable risks. At its most basic, self-funding your company’s health insurance plan means that your company, rather than the health insurance company, directly pays for the health costs incurred by your employees. Your employees still go to the same doctors and hospitals, but as explained later, self-funding provides much more flexibility to meet your company’s specific healthcare needs, which, in turn, allows you to better manage your healthcare costs. health.

Generally speaking, with self-funded health insurance, you set aside a specific amount for claims fees, stop-loss insurance, and medical bills that you expect from your employees each month. There are certain risks and additional work associated with these elements, but there are effective ways to control each of them.

For example: Just because you become self-funded doesn’t mean you now have to receive medical bills from your employees and write checks to all their doctors and hospitals. Almost always, self-funding companies simply hire a third-party administrator (“TPA”) to administer their health plan on behalf of their company. A TPA can be one of the insurance companies themselves as well as companies like Sedgwick Claims Mgt., Gallagher Bassett Services, and CorVel Corp., among others.

The TPA you select will receive claims submitted by your employees and pay medical providers from a bank account you have established for this purpose. Plus, using the reports and data you receive from the TPA, you can regularly review and assess how and where your healthcare costs are going. Plus, TPAs ​​manage your health plan based on your own preferred specifications instead of the insurance company’s internal policies.

In addition to TPA, if you choose to be self-funded, you should seriously consider purchasing stop-loss coverage to protect your business against large, unexpected losses. Especially for a small employer, even an unexpected claim for a huge medical bill could be devastating. But you can mitigate this risk with proper stop-loss hedging.

The basic principle of stop-loss coverage is that your company will only be liable for employee medical expenses up to a pre-agreed threshold (eg $25,000, $50,000, etc.). Once a medical claim reaches this threshold, the stop-loss coverage provider would be legally liable for all subsequent payments related to that claim. This type of stop-loss hedging is called individual or specific. You should probably also buy a “global stop-loss hedge” because it sets a pre-agreed threshold on your global annual medical costs for all employees so that you can have peace of mind that you will never exceed this total amount during of a given year. Again, this coin, like all coins in the self-funded health insurance world, is highly customizable and can be tailored to your specific needs.

Despite the obvious risk of the unknown, these customizations mean you can potentially save a lot of money with a healthy employee population, avoiding paying premium tax, and providing your employees with the care they need. actually need and they use. Simply put, self-financing can be implemented in countless creative ways to maximize the benefits to your business while simultaneously minimizing the risks if done correctly. Fully insured health plans, while convenient and less risky, cannot match this potential.

Data shows that larger companies (i.e., more than 200 employees) are more likely to use self-funded health insurance plans, but that doesn’t mean self-funding isn’t available to companies. small groups. Today, companies of all sizes are working with their brokers, insurance companies, and TPAs ​​to determine if self-funding can be an effective way to meet the healthcare needs of their employees. Self-financing may even be suitable for groups of 25 to 50 covered employees depending on a number of factors which you should discuss with your health insurance broker.

While there are many potential spin-offs to self-funding, it’s by no means for all businesses. Even with the help of a TPA, self-financing will likely require you to be more involved in managing your company’s healthcare needs than you were before. Additionally, even with stop-loss hedging, if the potential fluctuations in monthly costs were taxing on your company’s finances, it might not be right for your business as well.

While we all wish there was a surefire way to guarantee lower healthcare costs, there simply isn’t a proverbial “quick fix”. Circumstances and strategies vary depending on your business, your employees, and many other factors. But self-funded health insurance could potentially be an important consideration for your overall business cost control strategy. As always, I recommend talking to an experienced professional benefits consultant to find out if a self-funded health insurance plan might (or might not) work for your company.

The information in this article is provided for informational purposes only and should not be construed as legal advice on any subject.

Dane Scalise is an experienced legal and insurance advisor, attorney and consultant. As General Counsel and Insurance Broker for GriffinEstep Benefit Group, he helps individuals and businesses find creative and intelligent insurance solutions. Founded in 1998, GriffinEstep is a leading independent, full-service insurance brokerage firm with a team of consultants dedicated to clients, not insurance companies. GriffinEstep offers a unique combination of national expertise and local presence along with the knowledge, insight and technology to customize the individual insurance needs of its valued clients.