If you choose to self-fund your insurance plan, that means that you will be paying for the plan yourself, rather than purchasing it from an insurance carrier. With this plan type, you, as the employer, are responsible for paying claims, which does pose a greater risk, but also offers a greater reward. Self-funded plans offer the opportunity to reduce costs both in the short- and long-term.
Let’s take a look at the potential cost savings with this plan type.
How self-funding can reduce costs
First off, the healthier employees are, the lower plan costs are; you can offer wellness education and other programs such as smoking cessation, fitness, and more. to improve the wellness of employees and, as a result, reduce claims costs.
In addition, plans can be designed based on your specifications, such as company culture, number of employees, employee needs and more. With self-funding, you only include the things your employees need in their plan. When designing a benefits plan, you may choose to directly contract with a specific set of providers that bring care alternatives based upon the needs of your employees.
Self-funding offers greater visibility into utilization data, allowing you to adjust plan design and cost each year based on needs.
Additional savings are available when you opt for self-funding for a variety of reasons. Self-funding saves 2-3% on state premium taxes since with this plan type, these taxes are only incurred on stop-loss coverage. You also save on ACA-related taxes and fees, incur lower admin costs by using a TPA rather than an insurance carrier and pay no risk and retention charges.
Improved cash flow is another benefit of self-funding, as you only pay out when claims are made, allowing premiums paid to earn interest until claims come in and must be paid out. With this, utilization reports allow for better planning for future years and additional savings in a multi-year strategy.
In today’s complicated legal world, you are not subject to conflicting state health insurance regulations or benefit mandates, as self-insured health plans are regulated under federal law (ERISA).
What this means
If you are seeking cost-savings, you should consider self-funding your benefits plan, as this plan type offers both short- and long-term cost savings.
Consider the benefits of self-funding when selecting a plan for 2020.
Learn more about how self-funded plans compare to level-funded and fully-insured plans with this free guide.