Transitioning to a Self-Funding: A Step-by-Step Guide

As healthcare costs continue to rise, more employers are exploring self-funding as a strategy to control costs, gain flexibility, and improve benefits for their workforce. While the idea of taking on additional financial risk may feel daunting, self-funding gives employers transparency and greater control over their benefit plans. When paired with the right partners, innovative benefit design, and a high-performing provider network, self-funding can be a powerful tool to rein in costs and improve employee outcomes. 

In this guide, we’ll walk through the key steps for transitioning to self-funding and explain how The Alliance helps employers succeed every step of the way.  

Understand Your Options

Before diving into self-funding, it’s important to understand the differences between the types of employer-sponsored benefit plans.  

Fully Insured:

With a fully insured plan, employers pay a fixed premium to an insurer, who assumes all risk. Fully insured plans do not allow access to claims data or full customization of the benefit plan. This limits transparency, flexibility, and opportunities for potential savings. 

Level-Funded:

In a level-funded plan, employers pay a fixed monthly amount covering estimated claims, administrative costs, and stop-loss insurance. If claims are lower than expected, they may receive a refund. This model offers predictable costs and is ideal for employers considering self-funding but not ready to fully transition. 

Self-Funded:

With self-funding, employers don’t pay fixed premiums. Instead, they cover the cost of employee claims as they happen. This approach gives employers full responsibility for claims but also provides access to detailed claims data and allows for greater control and customization of their benefit plans. Self-funding offers the opportunity for significant savings and more informed, strategic decision-making.  

Assess Your Organizational Needs

Think about the circumstances of your organization, including size, risk tolerance, and financial and administrative capabilities.  

Organization Size:

While larger groups can spread risk more effectively, smaller organizations can self-fund successfully. Previously, a good rule of thumb has been that a business should have at least 100 covered lives to effectively self-fund. But recently, organizations with around 20 employees successfully self-funded with The Alliance. Any organization that provides health benefits and is willing to fulfill the legal and fiduciary responsibilities of self-funding, including unions, Taft-Hartley Insurance Trusts, municipalities, and school districts can pursue this option. Smaller employers also access The Alliance network using a level-funded platform.  

Risk Tolerance:

Self-funding involves variable costs and requires a willingness to manage financial risk. For employers seeking more predictability, level funding can be a suitable alternative with less exposure. 

Financial Stability:

While self-funding can lead to long-term savings, it is important to ensure your organization can handle potential spikes in claims costs. Self-funding is best suited for employers with stable cash flow and reserves. Utilizing a stop loss carrier can also help mitigate the risk of catastrophic claims.   

Administrative Resources:

Self-funding requires more management, but if employers work with the right benefit partners, it requires no more hands-on management than a traditional plan. Brokers, provider networks (like The Alliance), third-party administrators (TPAs), pharmacy benefit managers (PBMs), and stop loss carriers help self-funded employers create and manage their plans. Learn more about how to choose the right benefit partners.  

Self-Funding: Design Your Plan

When you’re ready to transition to self-funding, benefit plan design becomes critical. It is important to select the right benefit partners to help you design and manage your plan. This is where The Alliance’s expertise and services make a difference. 

Self-Funding Allows Customized Provider Networks

The Alliance helps self-funded employers design custom provider networks that lower healthcare costs by contracting with doctors and healthcare providers across the Midwest. Unlike standard networks, our Smarter Networks^SM are built around an organization’s specific goals, offering flexibility, control, and the opportunity to deliver better care at a lower cost.  

The Alliance offers a broad, customizable network with up to four benefit tiers. Our Comprehensive Network spans 91% of Wisconsin, offering employers a wide selection to support their employees and families. The Premier Networks can include a mix of major health systems and independent providers for services such as primary care, behavioral health, imaging, and labs, giving employees options to access timely care in settings that are convenient and cost-effective.  

Self-Funding Allows Steering & Tiering

Steering is a proven benefit design strategy that guides employees toward specific healthcare providers, facilities, or health systems (Preferred-Value Providers) while allowing them the freedom to choose where they receive care. By incentivizing care from providers who deliver good care at lower costs, steering helps both employers and employees get more value from their health plan.  

Tiering is one way to implement steering within a benefit design. It involves creating tiered networks that categorize providers based on value, cost, and quality. Tiers can range from offering the best value to providing the greatest choice, encompassing care delivered in various settings, including hospitals, standalone facilities, virtual platforms, and even in-home settings. Employers can choose to cover care from Preferred-Value Providers at lower costs, or even no cost to plan participants. This incentivizes plan participants to use providers who offer good care at lower prices which saves the health plan money.  

Employers seeking to effectively manage their healthcare spending through tiered networks can leverage options like The Alliance’s Premier Networks – the Premier Network Emerald and the Premier Network Ruby.  

Self-Funding Allows Data-Driven Decision Making

The Alliance uses advanced data analytics to help employers uncover savings opportunities and improve their benefit strategies. Our customized Smarter Health^SM analysis provides clear, actionable insights based on claims data and utilization trends. These reports empower employers to guide employees toward high-value healthcare and make the most of their custom network; maximizing savings while supporting better health outcomes. 

The Power of Self-Funding  

Self-funding can transform how employers offer benefits, allowing robust, competitive benefit plans while managing healthcare costs. This method is not just for large companies with extensive resources; any organization can take advantage of self-funding by using the right strategies and partners. Self-funding offers greater flexibility, control, and long-term financial stability. 

Interested in exploring whether self-funding is right for your business? Let’s connect— please schedule an appointment with me or reach out.