Should your business consider a self-funded health insurance plan? by Dane Scalise

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Everyone should have health insurance, but there is no denying that health insurance costs businesses and employees a lot of money. Like any other item in your budget, you would obviously prefer to pay less than more for health insurance without sacrificing quality. Fortunately, there are indeed various methods to achieve this desired result. For example, you may have heard of other companies choosing to self-fund their health insurance. But what does this mean exactly? And would self-financing be right for your business? These are big questions, but I’m trying to give a brief overview of self-financing health insurance in this article.

As part of a fully insured health plan, your business pays a monthly premium to a health insurance company (for example, Aetna, Blue Cross Blue Shield, Cigna, FirstCarolinaCare, and UnitedHealthcare). In exchange for this monthly premium, the health insurance fund undertakes to cover the health costs incurred by your employees. One of the benefits of this type of health plan is that you know exactly how much your plan will cost each year because you can simply multiply your monthly premium payment by twelve. However, a potential downside of a fully insured health care plan is that even if you and your employees are in very good health and / or do not incur a lot of health care costs, the health insurance company will not reimburse you. generally not for saving. their money.

A self-funded health insurance plan, on the other hand, attempts to resolve this dilemma in your favor in exchange for your taking controllable and customizable risks. Basically, the self-financing of your company’s health insurance plan means that your business, rather than the health insurance company, directly pays the health costs incurred by your employees. Your employees still attend the same doctors and hospitals, but as explained later, self-funding provides much more flexibility to meet your business’s specific health needs, which in turn allows you to better manage your costs. health.

Generally speaking, with a self-funded health insurance plan, you set aside a specific amount for administrative costs, stop-loss insurance, and medical bills that you anticipate each month from your employees. There are risks and extra work associated with these items, but there are effective ways to control each of them.

For example: just because you are self-financing doesn’t mean you now have to receive medical bills from your employees and write checks to all their doctors and hospitals. Almost always, self-financing businesses simply hire a third-party administrator (“TPA”) to administer their health plan on behalf of their business. A TPA can be one of the insurance companies themselves as well as companies such as Sedgwick Claims Mgt., Gallagher Bassett Services, and CorVel Corp., among others.

The TPA you select will receive claims submitted by your employees and pay medical providers from a bank account you set up for this purpose. Plus, using the reports and data you receive from the APT, you can regularly review and assess how and where your healthcare costs are going. Additionally, TPAs ​​manage your health plan based on your own preferred specifications instead of internal insurance company policies.

In addition to APR, if you choose to be self-financing, you should seriously consider purchasing stop loss coverage to protect your business against large and unexpected losses. Especially for a small employer, even an unexpected claim for a huge medical bill could be devastating. But you can mitigate this risk with proper stop-loss hedging.

The basic premise of stop-loss coverage is that your business will only be responsible for employee medical bills up to a previously agreed threshold (eg $ 25,000, $ 50,000, etc.). Once a medical claim reaches this threshold, the stop loss coverage provider would be legally responsible for all subsequent payments related to that claim. This type of stop-loss hedge is said to be individual or specific. You should probably also purchase ‘global stop-loss cover’, as it sets a pre-agreed threshold on your overall annual medical expenses for all employees so you can have peace of mind that you will never exceed that total amount. in a given year. Again, this piece, like all pieces in the Self Funded Medicare world, is highly customizable and can be tailored to your specific needs.

Despite the obvious risk of the unknown, these customizations mean that you can potentially save a lot of money with a healthy employee population, by avoiding paying premium taxes and providing your employees with the care they want. actually need and use. Put simply, self-financing can be set up in countless creative ways to maximize the benefits for your business while minimizing the risk if done correctly. Fully insured health plans, while convenient and less risky, cannot match this potential.

Data shows that large companies (i.e. more than 200 employees) are more likely to use self-funded health insurance plans, but that does not mean that self-funding is not available for them. small groups. Today, businesses of all sizes are working with their brokers, insurance companies and APTs to determine if self-financing can be an effective way to meet the health care needs of their employees. Self-funding may even be suitable for groups of 25 to 50 covered employees depending on a number of factors that you should discuss with your health insurance broker.

While there are a lot of potential payoffs to self-financing, it’s by no means for all businesses. Even with the help of a TPA, self-financing will likely require you to become more involved in managing your business health needs than you were before. Plus, even with stop-loss hedging, if potential fluctuations in monthly costs weighed on your business finances, they might not be right for your business as well.

While we would all like there to be a sure-fire way to ensure lower healthcare costs, there just isn’t a proverbial “quick fix”. Circumstances and strategies vary depending on your business, your employees, and many other factors. But self-funded health insurance could potentially be an important factor in your overall business cost control strategy. As always, I recommend that you speak to an experienced benefits consultant to find out if a self-funded health insurance plan might (or not) work for your business.

The information in this article is provided for informational purposes only and should not be construed as legal advice on any subject.

Dane Scalise is an experienced legal and insurance advisor, lawyer and consultant. As general counsel and insurance broker for GriffinEstep Advantage Group, it helps individuals and businesses find creative and intelligent insurance solutions. Founded in 1998, GriffinEstep is a leading independent full-service insurance brokerage firm with a team of consultants dedicated to clients, not insurance companies. GriffinEstep offers a unique combination of national expertise and local presence along with the knowledge, insight and technology to tailor the individual insurance needs of its valued clients.


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