Self-Funding: Fact vs. Fiction
Despite the rapid adoption of self-funded plans, there are still many misconceptions about self-funding. Let’s debunk some of the top myths about self-funding so you can better discern between fact and fiction.
Fiction: Self-Funding is only for large employers.
Fact: Self-Funded plan adoption is growing quickly amongst small employers.
According to research by the Employee Benefit Research Institute, the percentage of small companies self-insuring has risen to 17%. Level-funded plans or self-funding dental and other voluntary benefits help employers ease into a fully self-insured arrangement by building up savings to pay for claim expenses. As a result, it’s easier for smaller employers to switch to a more cost-effective benefit option and recognize the savings quickly.
Fiction: Self-Funding can be devastating if a catastrophic claim develops.
Fact: Self-Funded plans have built in protection for the employer.
Self-funded plans include stop-loss insurance which insures against a catastrophic claim or diagnosis. Stop loss can kick in when an individual member’s claims exceed a certain dollar amount. It can also kick in when the total claims for the employee base exceeds a certain amount. In either case, the employer is protected from excessive healthcare spending in the event of a catastrophic claim.
Fiction: Self-Funded plans cost a lot.
Fact: Self-Funded plans actually save a lot.
Unlike fully insured plans where unused premiums are lost, unused premiums from a self-insured plan are saved year after year for future expenses. This snowballs into a large savings for employers to use in funding their employees’ healthcare needs over time. In addition, it eliminates an employer’s need to pay for insurer profit margins or marketing, which the Self Insurance Educational Foundation estimates as a 10 – 25% savings on non-claim expenses.
Fiction: Self-Funded plans are hard to put in place.
Fact: Self-Funded plans are easy to implement when you partner with a TPA.
Most employers don’t know the ins and outs of healthcare insurance, especially when it comes to self-funding. However, that doesn’t mean self-funding is out of reach. When employers partner with a Third-Party Administrator (TPA), the TPA does the heavy lifting of plan design, formulary selection, ACA compliance, and administration of the plan. All the employer has to do is review the plan, provide feedback, and let the TPA do what it does best. TPAs are critical to the success of self-funding employee benefits, and partnering with a TPA makes the self-funding transition much easier for the employer.
In light of the facts, self-funding is a cost-effective, safe, and highly valued option for employee benefits. To decipher other self-funding myths or to implement a self-funded plan for your company, contact us.