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.
- Overall Control
Complete flexibility of plan design, funding & reserve margins
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
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
- 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.