Potential Pitfalls of Self-Funding Medical Benefits
There is a lot of talk about self-funded or level-level funded medical plans as a way for companies to save money on health benefits… for good reason. It is possible for employers to save 20% or more of health plan costs with self-funding. But what are some of the potential downsides of self-funding to consider?
- Although there is stop-loss insurance in place, typically, the total plan cost can be 20% to 25% more than fully-insured if the claims level is significantly higher than projected.
- Only employers with proof of better than average claims expense should consider self-funding.
- There can be a higher risk of liability since the employer is technically the insurer of the plan, and not an insurance company.
- Employers with under about 500 employees should seek out a “partially self-funded”, or “level-funded” contract, where monthly claim reimbursement levels from employer funds are capped at the level of a fully-insured plan, or at one-twelfth of the total expected paid claims. Without this protection, only one month of higher than normal claims can be a burden for a smaller company.
- Employers need to work with a broker or consultant who has experience with setting up and working with TPAs and stop-loss carriers. Also, there are compliance and cost issues that require the help of an experienced professional in self-funding.
Self-funding is an attractive alternative to fully-insured health plans for many companies. Self-funded policies are now available to employers with as few as 10 employees in some areas. With proper stop-loss insurance levels and an experienced professional to guide the way, more companies than ever can save money by implementing self-funded Health plans.