Why do some employers self-fund?
Self-funding has been in the news recently as the state of Wisconsin considers whether to adopt this method of paying for health benefits. There is a lot riding on this decision. The state buys a lot of health care, so changing their funding strategy will impact the market.
The discussion has become politicized and, in the process, self-funding has sometimes been characterized as a scheme to avoid state mandates and skirt elements of the Affordable Care Act.
That’s unfair. In the twenty-plus years I’ve been part of The Alliance, I have had many conversations with our Board of Directors and members about why they self-fund their health benefits.
In every case, the reasons are based on what our members want to accomplish rather than what they want to avoid.
Our members pursue self-funding to:
- Pay only for services that are actually used. No two organizations are exactly alike and neither are their health care needs. By self-funding health benefits, employers pay only for the care their employees use.
- Control their plan designs. Employers that self-fund their health plans have the flexibility to design benefits that meet the needs of their employees and to offer the same benefit package to all of their employees, regardless of where they live. This is an important factor in attracting and retaining employees.
- Reap the benefits of investments in wellness and health promotion. Employers and their employees that invest in wellness and health promotion benefit directly from improved health and lower costs, rather than having the savings accrue to an insurance company. Self-funding reinforces the message that employers and employees are “in this together.”
- Gain access to data with which to make decisions. Self-funded employers have access to data to help them identify opportunities to improve workforce health and to understand and manage cost drivers.
- Choose and manage their business partners. Self-funded employers carefully select and manage the business partners that help them administer their benefit plans. Doing so ensures that employers get better value while creating accountability for those of us who serve them.
For employers, self-funding is both a choice and a commitment. It’s not about what they can avoid; it’s about what can be achieved when employers work with their employees to pursue a better approach to health benefits.