The Advantages of Self-Funding or Level-Funding for Employee Health Plans
Dependent on the size of the employer, there are four key reasons to implement this strategy:
- Potential claim cost savings: With self-funding, employers with better than average claim losses will save money, as claims are not “pooled” or averaged with other employers that may have much higher claim levels.
- Tax savings: Reduced administrative costs due to no state premium tax. Unlike insured policies, self-insured plans are not subject to state premium taxes, a savings of 2 to 3 percent of the premium dollar value.
- Improved cash flow: Self-insured employers do not have to pre-pay for coverage, and claims are paid as they become due.
- Customization: Ability to customize plan design, as well as flexibility to work with multiple vendors. Employers can choose the benefits they want to offer and select benefits to offer on an individual basis or eliminate them altogether.
Employers can build the program their way, rather than fit into the “one size fits all” approach usually required in a fully-insured arrangement. This freedom gives employers the ability to structure their benefit offerings around the needs of its employees. In self-funding, employers are not required to provide many of the “state mandated” benefits that may not be useful to the employer’s specific population.
Employers are not locked into only one carrier’s services for pharmacy, case management or other services. Employers typically employ a “third party administrator” to pay claims on behalf of the employer. These organizations are highly skilled and structured to save employers significant administrative dollars over fully-insured plans.
Within self-funded plans, there is always stop-loss insurance included for both individual insured employees, and the company as a whole. As a result, even though the approach is called “self-funded”, the risk is tightly managed by stop-loss policies that protect the employer.
Advanced Benefit Strategies has extensive experience in moving qualified clients to self-funded arrangements. Talk to us about how it may save your company up to 20% in health plan costs.