As the US healthcare system continues to evolve under healthcare reform, employers are contemplating ways to reduce costs and seize control of their health benefits. The decision of whether to fully insure or self-fund is being considered among employers both large and small with many beginning to see that a self-funded health plan is the right choice for their company and employees.
Fully Insured vs. Self Funded
With a fully insured health plan an employer pays a monthly premium per employee to another company to assume financial responsibility, or risk, of their employees’ medical claims and the administrative costs associated with them. The company that assumes the financial risk, usually an insurance company, is required by the state to use a substantial amount of the premium as a reserve to cover claims and inflation. In the event the total claims expense is lower cost than anticipated, the insurance company benefits financially, not the employer who paid the premium.
In a self-funded health plan, employers take on the financial risk of their employees’ medical claims themselves. An employer that chooses to self-fund may also purchase stop-loss or excess loss insurance coverage to help mitigate the financial risk. Stop-loss insurance reimburses the employer should the claims cost exceed the catastrophic level selected in the stop-loss policy. Instead of paying a monthly, fixed cost premium per employee like in a fully insured plan, employers pay the cost of the claims as they are incurred. The ability to pay medical claims as they are incurred gives the employer greater control of cash flow. Additionally, the employer has the benefit of accessing and controlling the reserve, which is usually held by the insurance company in fully insured plans. The employer can benefit financially if the claims expense is less than anticipated. In the article, Benefits of Self-Funded Plans, we outline key advantages of self-funded health plans.
The Power of Choice
Self-funded plans allow employers increased choice and flexibility in each component of their health plan, which gives more control of cost, quality and service level. For example, employers choose whether to handle administrative functions related to health care claims in house, known as self administration, or purchase an administrative service only (ASO) package. Another favorable option is to partner with a third party health plan administrator to handle the administrative claims process. A health plan administrator, like PayerFusion, is uniquely positioned to help employers develop health plan policies based upon past claims data and include services such as cost containment, case management and choice of provider networks. The power of choice is the most powerful advantage of choosing a self-funded plan, as it also gives more control of plan cost.
Self-Funded Plans and Healthcare Reform
Apart from increased choice and control of plan cost, self-funded plans are taxed on only a fraction of the plan’s cost, if taxed at all. Under PPACA, self-funded plans are exempt from the state mandates that fully insured plans are required to observe. In an earlier post, Health Care Reform Timeline for Self-funded Plans, we illustrate how Health Care Reform will directly and externally affect Self-Funded Plans each year.
By choosing to self-fund their health plan, employers can take advantage of cost savings and choice of plan design. Self-funding allows for flexible benefit decisions, choice in administration, increased cash flow, as well as savings incurred by being exempt from several provisions of health care reform.
PayerFusion is a Health Plan Administrator that offers complete health plan administration solutions customized to meet self-funded health plan payer needs. These include provider network design/support, policy design, full-service TPA, technology solutions/support and informatics as well as access to our PayFuseNet provider network. Contact us for more information on how PayerFusion can help design and manage your health benefit plan.