Self-Funding to Control Health Care Costs

Understand How The Alliance Can Help

Learn the answers to the questions businesses are asking around self-funding to control health care costs, including how to control costs, budget for their expenses, and protect themselves from large or catastrophic claims. An explanation on how self-funding differs from fully-insured health benefit plans can be found here to help decide what’s right for your business.

The Alliance can answer your questions:

  • Member Testimonial Video: Flambeau, Inc.
  • Member Testimonial: Lowering Costs
  • Member Case Study: Seats, Inc.
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Can you use self-funding to control your health care costs?

Businesses want to know whether their health care spend is purchasing high-quality care at a fair price. They want to know what causes costs to rise and fall. And they want to engage employees in making better health care decisions, so they can avoid overtreatment and reduce out-of-pocket spending. 

 Self-funding can help address those needs by providing access to data about when and where employees use health care. This allows employers to help incentivize the right type of behavior and determine what would be most beneficial for their employee population.  While self-funding can’t solve all of an organization’s health care problems, it can make it possible to start moving health care toward better solutions for high-value, fairlypriced care. 

How does self-funding differ from fully-insured options?

Understanding self-funding begins with understanding that risk transfer costs money. When you purchase a fully-insured plan, you are transferring the risk to an insurance company and paying them to take on the risk. When you use a self-insured plan, you are saving money by managing the risk yourself. 

Self-funding allows you to capture the benefits of: 

  • Actively working toward a healthier, more productive workforce. When you are self-funded, these efforts typically transfer directly to the bottom line. 
  • Flexible plan designs that help you achieve specific objectives. You may choose to pursue value-based insurance design, for example, to encourage employees to obtain care for chronic conditions before they escalate. Self-funding also exempts businesses from state mandates for health coverage. 
  • Pursuing utilization control programs that match your goals and your workforce. Instead of being restricted to the insurance company’s offerings, you can select programs based on your needs. Options might include care coordination, disease management and pharmacy benefits. 
  • Exploring new ways to pay for care. You can use incentives and plan design to guide employees to high-quality, fairlypriced care. For example, businesses who are members of The Alliance can use the QualityPath program to guide patients to high-quality care with a bundled price that lowers or eliminates patients’ out-of-pocket costs while giving them a 90-day warranty on select surgeries. 
  • Engaging consumers in cost and quality. Self-funding can help you launch a consumer-directed health plan (CDHP) and engage employees in decisions about their health. For example, The Alliance offers the Find a Doctor website, so employees and family members can learn about the cost and quality of their care before they choose a doctor, hospital, or health service. 

Savings will vary based on your workforce, your plan design, and the medical expenses that occur during a specific plan year. Businesses typically experience the greatest savings when they pursue self-funding as a long-term strategy. 

How do self-funded employers budget for expenses?

Self-funded businesses gain more control of cash flow and retain any savings they experience. Instead of paying money to the insurance company in the form of reserves or as pre-paid premiums, an organization with a self-funded health plan typically will:

  • Pay for expenses only after they are incurred.
  • Capture the interest on reserves, which are now held by the self-funded company.
  • No longer have to pay the premium tax, which typically represents 2 to 3 percent of the fully-insured premium amount. Insurance companies typically pass this tax on to their customers.

How do self-funded businesses and organizations protect themselves from large or catastrophic claims?

Stop-loss insurance limits an organization’s exposure for eligible medical expense costs associated with a plan year. Two types of stop-loss insurance are needed:

  • Specific stop-loss limits the organization’s exposure for the eligible medical expenses of each covered individual during a plan year.
  • Aggregate stop-loss limits exposure for eligible medical expenses for all covered individuals during the entire plan year.

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