For a long time, self-funded health plans were only for big companies, with 200 plus employees. However, because of the recent health care laws that have come into effect, more small businesses are looking into this simpler way of having health insurance to save money, and have more control and insight into their health plans. So, what are the differences between self-funded health plans and fully insured plans, and why should you choose self-funded?

Self-Funding

Self-finding health policies are when employers pay for individual employee health claims out of pocket. That may sound scary, but there are many benefits to switching over.

• Rather than buying a one-size-fits-all insurance policy from a big company, self-funding allows you to create your own plan. Employee eligibility, covered benefits and exclusions, employee cost-sharing, policy limits, and retiree benefits are all items that you can add, delete, or budget to how you and your company see fit. This gives you more control over your plans.
• With self-funding, you will have complete access over your data, meaning that you can look at your healthcare utilization charts to see how your claim dollars are being used. Your data will also be better in general because it will be limited to just your employees, not a broader spectrum of people.
• Your employees have lower premiums to pay, including state premiums. Workers in firms that are self-funded have lower single and family premiums than workers in firms that have insured benefits, according to the Employer Health Benefits 2010 Annual Survey by the Kaiser Family Foundation.
• Your business has an opportunity for a refund, if claim expenses are lower than funded. The Self-Insurance Institute of America estimates plan savings of an estimated three to five percent each year because of improved claims management.

As a small business, you may not think self-funding is right for you. There are a few risks involved, including financial risk, administrative cost, and a possible weak economic cycle. However, the pros eventually outweigh the cons.

How does it Work

A self-funded health plan will help you draw the best employees in your industry. By having an advantageous and rewarding benefits system, you can customize your plan to benefit each employee’s needs. As an employer, you set up a monthly payment which is composed of:

• Aggregate stop-loss premium (all of the claims exceeding a specific dollar limit)
• Specific stop-loss premium (a single catastrophic claim that exceeds a dollar limit)
• Administrative expenses and aggregate claim liability account (also known as a claim pre-fund account)

All covered claims are paid out of the claim pre-fund account. The employer also pays the claims costs incurred by the covered persons enrolled in the plan. This cost varies from month to month based on health care use by the covered persons.

What to Consider

If you are still not sure whether or not to obtain a self-funded health policy, there are a few things to consider that will help make your decision easier. First, you must establish if you have the funds to cover any amount of health care claims costs.  A small company with about 25 employees or more would be the ideal size for a business with self-funded health policies. Next, if the work that your company does is volatile, and unpredictable, self-funding might not be for you, since a catastrophic occurrence is more likely to happen. The same thought should be applied to the general age and health of you employees. If most of your employees are young, then self-funding may be worth your while, with less of a chance of a health risk.

If you have more questions about whether or not to self-fund your business’s health policy, contact Employer Advantage Group in Westborough, MA. We will happily consult with you on what your best options are.