Health insurance costs continue to be a key area of concern for many businesses. But if you have more than 25 employees enrolled in your current health insurance plan, there is an alternative you may want to consider: a self-funded health insurance plan. This plan will not only help you manage costs, but you can also customize the benefits you offer employees. Let’s take a look at some of the key advantages of a self-funded health insurance plan for your business.
What is a self-funded insurance plan?
A self-funded or self-insured insurance plan is when you (the employer) assume the financial risk of providing health insurance to your employees. You pay for claims out-of-pocket, instead of paying an insurance company pre-determined premiums. Here’s a side-by-side look at how self-funded and fully-insured plans differ:
- A third-party administrator (TPA) collects money from your company to pay doctors and hospitals for claims.
- You pay the administrative company a fee to manage your self-funded program.
- Your claim costs can vary each week, but you can cap your liability with a stop-loss or excess-loss insurance.
- Your health insurance company pays doctors and hospitals for claims.
- You pay your insurance company monthly premiums for each employee on your health insurance plan.
- You pay the same monthly premium no matter what claims have been submitted.
Is a self-funded insurance plan right for my business?
For years, it was thought that self-funded plans were only right for large companies that had hundreds (if not thousands) of employees who needed health insurance. In reality, a company with as little as 25 employees could benefit from going self-funded. Crossroads Insurance will help you evaluate whether self-funding is right for your company by looking at your financial condition, cash flow, and risk tolerance.
Why should I choose a self-funded insurance plan?
One key reason employers choose to self-insure is that they can save the profit margin an insurance company adds to its premium for a fully-insured policy. This could save your business a considerable amount of money. That savings isn’t without risk, however. With a self-funded plan, you run the risk of having more claims than you expected to pay. Some additional advantages include:
- Savings stay with the health plan. If your group doesn’t reach your expected costs for the year, you get to save that many for any future health claims. This gives you more control of where your plan dollars are going and how they are dispersed.
- Your plan is designed for your employees/workforce. Self-funded plans are designed to include the employee benefits and health coverage solutions that are necessary and beneficial to plan participants.
- You don’t pay any hidden fees. Self-funded plans focus on actual costs. While you do pay an administrative fee for your TPA to manage the plan, these fees are negotiated and clearly outlined as ERISA, the main regulating law behind self-funded plans has a strict transparency and reporting requirements.
- Rate increases are minimal. Premiums on traditional plans have continued to rise, boosting both the cost your company and your employees pay. With self-funded plans, your costs are more contained and manageable, plus any money saved stays with the plan.
- You can create better wellness programs. With a self-funded plan, you have access to generic data trends that help you identify ways you can promote healthy living at your business. This type of information isn’t usually provided with a fully-insured plan. Crossroads can work with you to help implement employee wellness programs that provide participation incentives.
How do I protect my company from the added risk of a self-funded plan?
To help limit the risk of a self-funded plan, some employers purchase stop-loss or excessive-loss insurance. This insurance will reimburse your company when claims go over a pre-determined level. You can choose to purchase this coverage for one covered person (specific coverage) or for the entire group (aggregate coverage).