Since 1999, the number of employees covered under a self-funded plan has increased: In 1999, the percentage of employees covered by a self-funded plan was 44%, and by 2015, that number increased to 63%.
With the rise of self-funding, you may have seen various articles written on the topic and generally heard the term more frequently. But what is it? Here are the basics to get you in-the-know.
A self-funded group health plan, also known as a self-insured group health plan, means that the employer assumes the financial risk for providing health care benefits to its employees. To put it another way, self-funded plans are more of a “pay-as-you-go,” as opposed to the fixed premium that you would pay with fully-insured health plans. Self-funded health plans are best accompanied with stop-loss insurance, which essentially protects the employer from assuming sole liability of excessive or unexpected claims.
There are many potential benefits and advantages of self-funding group health plans, including:
- Customizable plan design
- Lower taxes
- Greater claims data access
- Customizable wellness and health management programs
- Not subject to many state mandates
- Additional cash flow
- Savings on administration costs
- Greater transparency
Typically, self-funding has been thought to be a viable option only for large companies who have the cash flow or financial resources needed to cover claims themselves. However, the reality is that self-funding with the proper protections in place, such as stop-loss insurance, can be advantageous for most companies above 100 employees. According to the U.S. Department of Health and Human Services, “About 26% of employers with between 100 and 499 employees self-insure (for employers with 500+ employees that number is 82%).”
Each company is unique, and therefore has different needs as far as funding options go. There are many factors to consider when exploring funding options or possibly transitioning to self-funding. The safest way to decide if self-funding is the best option for your company is to speak with a broker who specializes in self-funding (we might have somebody in mind!).
Sources: 1. http://www.hcaa.org/page/selffunding 2. http://www.benefitspro.com/2015/03/09/the-rise-of-self-funding 3. Kaiser/HRET’s Survey of Employer Sponsored Health Benefits, 1999–2015