What is a Self-Funded Health Plan? Benefits, Pros & Cons Explained

Introduction

A self-funded health plan is an alternative to traditional health insurance that allows employers to pay the medical costs of their employees directly instead of paying a premium to an insurance company. Self-funding provides businesses with more control over their healthcare costs, allowing them to tailor their coverage to their specific needs and budget. In this article, we’ll explore what a self-funded health plan is, how it works, and the pros and cons of using a self-funded plan.

What is a Self-Funded Health Plan and How Does It Work?

In a self-funded health plan, the employer pays for their employees’ health care expenses out of their own pocket rather than paying a premium to an insurance company. The employer sets aside money from their own funds to cover the cost of any claims made by their employees. This money is held in an account known as a “stop-loss” or “excess loss” fund. If the amount of money in the fund is not enough to cover the claims, the employer may need to make additional payments from their own funds.

The employer can choose to hire an administrative services organization (ASO) to help manage the plan. The ASO handles tasks such as setting up the health plan, collecting premiums, processing claims, and handling customer service inquiries. The ASO also helps the employer navigate the complexities of self-funding, including understanding and complying with applicable regulations.

A Guide to Understanding Self-Funded Health Plans

Self-funded health plans offer a number of potential advantages over fully-insured plans. For one, they allow employers to have greater control over the design of their health plans, which can be beneficial for businesses that want to tailor their coverage to their specific needs and budget. Additionally, self-funded plans can often provide more flexibility when it comes to things like provider networks, copayments, and deductibles.

According to a 2017 survey by the National Business Group on Health, 92 percent of large employers now offer some form of self-funded health plan. The survey also found that more than half of all large employers are either considering or actively moving towards self-funding.

The Pros and Cons of Self-Funded Health Plans

While self-funded health plans offer a number of potential benefits, there are also some risks involved. Here are some of the pros and cons of self-funding:

Advantages of Self-Funding

• Lower administrative costs than fully-insured plans.
• More control over plan design, including the ability to tailor coverage to the employer’s specific needs.
• Potential to reduce costs if claims are lower than expected.
• Flexibility to add or remove coverage as needed.

Disadvantages of Self-Funding

• Risk of higher costs if claims are higher than expected.
• Complicated regulatory environment.
• Potential for higher administrative costs if the employer does not have sufficient resources to manage the plan.
• Limited access to the same level of provider networks as fully-insured plans.

Comparing Self-Funded vs Fully-Funded Health Plans

When deciding between self-funded and fully-funded health plans, employers should carefully evaluate their options. While self-funded plans can offer potential savings and more control over plan design, they also come with certain risks that must be taken into consideration. Employers should consult with a knowledgeable health insurance professional to help them make the best decision for their needs.

It’s important to note that self-funded plans are not available in all states. Depending on the state, employers may be required to purchase stop-loss insurance, which covers the employer if claims exceed the amount of money set aside in the stop-loss fund.

Navigating the Complexities of Self-Funded Health Plans

Navigating the complexities of self-funded health plans can be challenging, especially for employers who don’t have the resources or expertise to manage the plan themselves. Working with an experienced provider is essential for employers who want to ensure they are compliant with applicable regulations and get the most out of their self-funded health plan.

An experienced provider can help employers understand the risks and potential benefits of self-funding, as well as guide them through the process of setting up and managing their self-funded plan. They can also provide valuable advice on selecting the right plan for their needs and ensuring their plan is compliant with applicable regulations.

Conclusion

Self-funded health plans offer employers an alternative to traditional health insurance, providing them with more control over their health care costs and the ability to tailor their coverage to their specific needs and budget. While there are risks involved with self-funding, these can be mitigated by working with an experienced provider and taking the time to carefully evaluate all of your options.

For employers looking for an alternative to traditional health insurance, self-funded health plans can be a viable option. With the right plan and provider, employers can gain greater control over their health care costs while providing their employees with quality coverage.