Self-funding (what’s known as self-insured insurance) is a health plan in which an employer is paying for their employees’ health care claims. In a self-funded plan, employers set aside money into a “fund” or trust that’s earmarked to pay their employees’ health care claims.
Although self-funding has been used by large employers for decades – at employers with more than 5,000 employees, 91% of their insured individuals are covered under their self-funded plan – smaller employers have been slower to take on that risk. Until now.
As traditional PPOs and HMOs carriers continue to break records in profits and growth, (and continue to cost more too,) employers are starting to view the pandemic as a breaking point and are jumping into self-funding. When employees don’t seek medical care – whether due to good health or a pandemic – employers don’t retain their savings, the insurer does. With self-funding, employers are rewarded for having a healthier workforce, and as a result, incent their employees to be healthier. And when employees have the resources, education, and support to maintain their health, they’re also happier and more productive.
Why Choose Self-Funding?
Employers choose to self-fund their health plans because they can benefit both their bottom line and their employees’ overall health and wellbeing:
- Significant Savings: Self-funded employers no longer need to pay insurers or pay state taxes on their premiums. And when total health claims are lower than expected, the employer gets to keep their savings – which can be substantial.
- Complete Customization: Every employee population has different demographics, and self-funded employers can design their health benefits to suit their unique needs. And because self-funded employers aren’t bound by the network of a traditional insurer, they’re not confined to using a single health system; large and jumbo-sized self-funded employers are free to contract directly with providers, while smaller employers often opt to join a group-purchasing coalition – like The Alliance.
- Total Control: Another benefit of self-funding is that employers have unlimited access to their data because they own it as a self-funded business. Analyzing this data helps self-funded employers identify health trends (like common chronic illnesses) within their workforce, unlocking significant cost-savings opportunities.
- Unprecedented Flexibility: Within the bounds of ERISA, employers can operate their health plan as they see fit, partnering with whatever vendors they wish. And by bringing together like-minded vendor partners, employers can save even more by reducing waste and improving their employees’ health and wellbeing.
What Are the Risks of Self-Funding?
So, what happens when an employee or family member incurs an unpredictable, financially devastating claim? Self-funded employers typically partner with a stop-loss insurer to cover individual claims that exceed a predefined maximum allowed amount per employee, defending against catastrophic claims. Self-funded employers also generally utilize stop-loss insurance for aggregate claims, which acts as a safety net if their total claims exceed the employer’s expectations.
If the employer does not have proper stop-loss insurance in place, they expose themselves to the potential financial risk of catastrophic claims. Additionally, particular employee populations can pose more risk for high-cost claims, and the employer should identify, understand, and plan for that potential liability.
Lastly, there’s a more considerable administrative burden on behalf of the employer to implement, maintain, and improve a self-funded health plan. That’s why employers work with partners to help them with their benefits. Self-funded employers often select a third-party administrator (TPA) to process their claims and a pharmacy benefit manager (PBM) to administer their prescription benefits.
Is Self-Funding Right for My Business?
As you’ve now read, self-funding can be a cost-effective alternative to the traditional fully insured approach. When your business self-funds, you take on the risks and rewards of paying your employees’ claims. You also take on the heavy administrative burden of implementing your plan and vetting TPA, stop-loss, and PBM partners.
Employers that choose self-funding aren’t just making a business investment, but an investment into their employees’ health and wellbeing. Naturally, with that comes an investment of time and resources, but engaged employers that make the switch can expect to save at least 15% on their health care costs in just a few years.
Self-Funding Smart: The Alliance Approach
By self-funding with The Alliance, you gain total transparency of your claims data, and while other insurers make little attempt to improve network quality, our ever-growing Smarter Networks span more than 31,000 doctors and providers across the Midwest, which saves you money and helps your employees avoid out-of-network surprise billing.
As the voice for more than 285 self-funded employers, we find savings where others can’t – or won’t – using deep data mining and analytics to unlock steerage, bundled payments, preferred pricing, inflation protection, pay-for-performance contracts, usage-based fees, and other self-funding opportunities.
Finally, The Alliance is a not-for-profit cooperative that’s member-owned and led, which means your priorities are our priorities. For over 30 years we’ve been growing our network, building our purchasing power, and upgrading our provider contracts to help you achieve better value for your health care dollar – focusing on your bottom line – not ours.
To learn how The Alliance can help you make the transition to a self-funded plan, contact our Business Development team.