Self-Funding

Is Self-Funding right for you?

Self-funding is an effective method for taking control of health care expenditures and creating financial & operational efficiencies that inure to the benefit of both the employer and its employees. These benefits require a long term commitment which, like any long term fiscal decision, requires a sound understanding of both the advantages and potential disadvantages of self-funding.

Advantages
  • Overall Control
    Complete flexibility of plan design, funding & reserve margins
  • Monetary
    Money previously held in the form of reserves, incurred claims & reserve/claims profit margin is held in your accounts and earns interest for you
  • Reduction of Premium Tax
    Self-funded plans are not subject to the premium taxes fully-insured plans pay
  • Elimination of State Mandated Benefits
    State mandates are not enforced as plan is governed solely by ERISA
  • Administrative Efficiencies
    By utilizing a Third Party Administrator eligibility, billing, claims payment & claims resolution is streamlined through one location. Client satisfaction is increased and plan performance is maximized
  • Reduced Operating Costs
    Administrative fees incurred by TPAs are often lower than in fully-insured arrangements
  • Reporting
    Accurate, detailed claims utilization reporting & analysis is available to self-funded plans that is not readily available to their fully-insured counterparts
  • Cost and Utilization Controls
    The plan dictates how much or little medical management to incur within the plan
Disadvantages
  • Financial Risk
    While current Reinsurance contracts create minimal risk overlap,
  • Increased Employer Education
    A successful self-funded plan requires Management buy-in in the form of health care education. Medical trends, claims analysis & employee communication is critical to ensuring the maximum benefit from self-funding
  • Decreasing Population
    If an employer incurs a large downward swing in enrollment, the concurrent claims lag, decreased premium and census change can cause cash flow issues as well as jeopardize Reinsurance contracts.
  • Return to Fully-Insured
    In the period a plan sponsor returns to fully-insured, it is responsible to fund both run-out claims as well as fully-insured premium. This can cause a double-expense effect in the first few months of the new plan.