(By Saad Imran)
The employer’s insurance plans in which the organization takes the responsibility of paying all of the out-of-pocket claims from their funds are called self funded plans or self funded benefits.
In these plans, the limits and scope of health benefits are decided by the employer. However, the processing of claims is contracted to the Third Party Administrator or TPA.
The main difference between fully-funded plans and self-funded plans is that the risks rest with the employer instead of the insurance company. All of the insurance claims must be paid from the assets of the business.
However, if you are a small employer looking to control rising healthcare costs, self-funded plans are highly recommended for your business. According to a survey, 90% of the insurance advisors do not advise working with large insurance companies and acknowledge the long-term benefits of self-funded insurance.
There are a lot of myths associated with self-funded plans. For example, employers believe that these plans expose their company to a lot of risks. However, the reality is that employers can precisely control how much risk they are willing to take.
This article does a good job at dispelling some other myths associated with self-funded plans.
Providing benefits to your employees makes good financial sense, and a self-funded group health plan can be a nice addition to your employee benefits program. Following are some ways these plans can help your business grow:
Increased Control and Flexibility
Typically, when you outsource your insurance needs to an insurance company, you are provided with a pre-made insurance plan. However, when it comes to insurance for your employees, there should not be a one-size-fits-all approach.
Your team of employees may have different needs and requirements. As an employer, you may have some monetary constraints which may affect your insurance plan.
With a self-funded plan, you have the flexibility to design your health insurance plan completely fit for your organization’s needs and the needs of your employees. You work with a TPA to select your own levels of deductibles, co-pays, and the scope and coverage of your insurance plan.
In short, as an employer opting for self-funded plans, you only pay for what you choose.
Improved Cash Flow
The ongoing pandemic has caused a massive financial crisis for businesses, and preserving your business’s cash flow is the essential thing to do if you want it to survive.
A self-funded plan immensely helps in improving the cash flow of your business. If you have a contract with a large insurer, you pay a hefty premium regardless of the number of claims. With a self-funded plan, you only pay when a claim comes in.
With fewer claims, the money stays on the employer’s books. Additionally, when an employer switches from a fully insured plan to a self-funded plan, they get a one-time cash bump due to a lag in the billing of employee claims.
Save State Premium Taxes
When you have a self-funded plan, you only pay a premium if you have excess loss coverage. Excess loss coverage means that if your employee has spent more than the limit you have prescribed, the insurance company will reimburse you.
Most of the states charge taxes on insurance premiums, usually 1 to 3% of the total premium cost. Insurance companies include this cost in the total amount of premium charges.
Due to the Employee Retirement Income Security Act (ERISA), self-funded employers cannot state premium taxes and other fees.
Detailed Reporting and Analytics
Large insurance providers do not provide a detailed breakdown of the cost of your employee claims, which means you can be paying for services that may never have been required.
Companies that manage self-insurance or TPAs provide you with monthly and annual reports which show exactly how your money was spent. TPAs have a significant focus on the transparency of the claims.
With these reports, you can stay informed of your healthcare costs and make better decisions to control those costs. The analysis and the trends also help you customize your plan according to your employees’ needs. In this way, you can come up with a plan which not only saves your money but is also beneficial for your employees.