In the wake of rising healthcare insurance costs for employers, they are now exploring alternative ways of providing health insurance to their employees – one of them being self-funded health plans.Still now, most employers, especially small employers, buy private medical insurance plans for their employees.
This conventional way of offering health insurance has slowly but surely started to change.There has been a sharp and steady rise in the rate of health insurance premiums over the last few years.For small employers, health insurance benefit is a significant factor which helps to attract prospective employees and retain them.Self-funded insurance has been generally used by large companies with hundreds of employees – now, small businesses have started to adopt self-funding as their way of providing employee health insurance benefit.
What is Self-Funded Health Insurance
There are two distinct ways in which an employer can provide health insurance to his employees –
- Fully-Funded Plans
An employer offers health insurance plans to his employees and their dependants which are issued by medical insurance companies. These companies bear the full risk of insuring the employee and is responsible for all the claims as per the terms of the health plan. The employee may have to pay a share of the medical bills and premiums.
- Self-Funded Plans –
For these plans, it is the employer’s responsibility to pay all the claims of the employees. The plans are not issued by any insurance company.The employer does not take any premiums from the employees.
The employer may set up a specific fund to cover the medical claims of the employees.Self-funded or self-insured plans are generally supported by medical insurance companies.They provide the administrative support as third party administrators (TPA). This can also be done in-house.
Advantages of Self-Insured Companies
- The employers are not bound by the terms of any insurance company and can have the coverage according to the individual needs of the employees.
- The self-insured company can earn interest from the money it sets aside for settling medical claims.
- Self-funded insurance plans turn out to be cheaper than traditional health plans bought through insurance companies.
- There is no need to pay any premiums to any insurance company thereby freeing up financial resources.
- These self-funded plans are not under the purview of any state insurance laws. They are regulated by the Employee Retirement Income Security Act (ERISA).
- These plans are not subject to the laws of the Affordable Care Act including community rating or including essential health benefits.
- Self-insured employers are free to choose the best suited providers for his employees.
- The self-funded plans are exempt from state health insurance premium taxes.
Protection for Self-Insured Employers
The risks of a self-insured health insurance arrangement are quite high. The company should have a solid reserve of funds to meet claims at any time. This may be difficult for small companies who have restricted cash flow. For this, self-insured companies can buy stop loss insurance from an insurance company. This covers the risk of very large claims which exceed a specified limit.
If employers want to go for self-funded insurance plans, they should compare health insurance plans and assess their own ability to finance the medical claims and other considerations.
01+ Self Funded Group Health? - Save up to 47% (Guaranteed) - Compare Self Funded Health Plans - Guaranteed Savings - Get Quick Free Quotes!