The following FAQ provides employers with basic information regarding the self-funding of health benefits. Please consult PayerFusion to request more information.
What is a Self-Funded Plan?
A Self-Funded Health Plan is a health plan in which the employer assumes the financial risk for the medical claims of their employees instead of purchasing a fully insured health plan from an insurance company. By choosing to self-fund, employers have greater control over the design of the plan, can invest to the advantage of the company and can avoid some of the regulations that insured plans are subjected to. Employers who self-fund are able to design a health plan best suited for their employee base instead of attempting to make a predetermined plan fit their needs.
Why should employers consider Self-Funding?
One of the main reasons employers choose to self-fund is because of the cost savings they can achieve. Cost savings opportunities can come from:
- No state premium taxes can be applied to self-funded plans. Premium fees are about 4-6% of the monthly premium and can only be applied to insurance plans, subject to state regulation. The only part of self-funded plans that are charged premium taxes are excess/stop loss insurance protection plans.
- Employers aren’t required to pay risk and retention fees since they assume the financial risk themselves.
- Employers retain control over health plan reserves, allowing them to earn interest on the reserve through investment. Once all claim costs have been met, the remaining reserve is free to be used for any company purpose. In a fully insured plan, insurance companies would retain this surplus as their profit.
- Since self-funded plans are only subject to federal regulation, employers are free to design the plan to reflect needs of their employees and therefore save money on unnecessary or unused benefits.
- When self-funding, claims are paid as incurred, and not prepaid, freeing cash flow for other company concerns that may arise.
- Self-funded companies only pay benefits based on their employee base, not rates reflected of an entire insurance company pool of clients.
What laws apply to Self-Funding?
Self-Funded plans are free from some laws and regulations but are subject to all applicable federal laws such as PPACA, ERISA, COBRA, etc. Our post, PPACA & ERISA: Regulation of Self-Funded Plans offers more detail on how PPACA and ERISA affect self-funded plans.
Who is Self-Funding best suited for?
Self-Funding is best suited for employers who are comfortable with the amount of financial risk necessary to cover their employees. Companies who do not have a fairly predictable amount of claims or are particularly small probably should not choose to self-fund.
Is there additional coverage available for extreme or unforeseen cases?
Self-Funded Health Plans are also supplemented with Stop Loss or Excess Loss coverage for protection against extreme, or catastrophic claims. It can be purchased in two forms, specific/individual coverage and aggregate coverage. Specific/Individual coverage covers single claims that exceed a specific dollar amount chosen by the employer. Aggregate coverage covers the total of claims exceeding a defined dollar amount.
Who will administer the Self-Funded Plan?
Large employers who self-fund may choose to administer their health plan themselves, however, most self-funded employers choose to hire a third party administrator to administer the plan for them. Companies also have the option to hire ASO only services from an insurance company, but many feel that these ASO service plans are not flexible enough for their needs like what is offered through a TPA. TPAs are typically the preferred choice for self-funded plans.
Want to Self-Fund?
PayerFusion is a Health Plan Administrator that offers an extensive array of services that meet self-funded health plan payer needs. These include provider network design/support, policy design, full-service TPA, technology solutions/support and informatics. For more information on our services please visit Our Services. If you are interested in having a service package tailored to your needs, please contact us.