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The Whats, Whys, and Hows of Self-Funding – Part 2

Posted on by Ashley McCurdy

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The Whats, Whys, and Hows of Self-Funding – Part 2

In our previous blog, we talked about why self-funding has become a highly-valued benefit plan option and what self-funded plans do for employers. Now let’s talk about how self-funding helps employers cut employee benefit costs, manage risk, and mitigate the poor trends in today’s healthcare industry.

How does self-funding save employers money?

Because the employer only pays for claims out-of-pocket, they’ll only pay for claims if they’re incurred. This means that if benefits are not used, healthcare spending will be low as well. Because of this funding model, any self-funded plan savings are kept by the employer and will be applied to next year’s claims. In addition, when the TPA implements case management or bill audit and review programs, the resulting savings are kept by the employer, not the TPA. And to top it all off, because self-funded plans are governed by ERISA (federal legislation), employers with self-funded plans are exempt from state taxes. All this adds up to substantial cost savings as well as a growing accumulation of funds to pay for future healthcare expenses.

How does self-funding help employers manage risk?

When designing a benefit plan, the TPA hand-selects a PPO that best addresses the health needs and risk factors of the employee base. It also develops a prescription formulary that addresses high drug costs, detects drug overuse, and ultimately helps the employer control RX spending. The TPA’s analytical claim reports give employers full transparency about the drivers of their healthcare costs, enabling them to implement case management programs that address the needs of the highest cost claimants. And lastly, the group is protected by stop-loss insurance in the event a specific claimant or the entire group’s healthcare claims exceed a certain level. These combined methods empower the employer in managing current risk, mitigating potential risk, and focusing future cost management efforts in a targeted, meaningful way.

How does self-funding counteract the trends in the healthcare industry?

In a world of rising healthcare costs, self-funding employs multiple methods for reducing current costs while saving for future expenses. Self-funding also gives employers complete transparency about their benefit cost drivers so they can proactively address them. Because plans are custom designed, the employer doesn’t pay for coverage that isn’t relevant to their employee base, which increases benefit utilization. And because the employer works together with a TPA to design and manage benefit plans, they’ll have a partner to lean on for adhering to regulations today and tomorrow.

How do I get started with self-funding?

Contact BMA for an assessment of how self-funding can benefit your specific employee base. We will design a plan for the unique needs of your employees, including networks, formularies, and benefit types. You’ll give us feedback on the plan design, and once the plan is set, we’ll do the heavy lifting of processing claims, answering benefit questions, managing compliance, mitigating risk, and helping you realize substantial cost savings. We look forward to supporting you in this cost-saving journey.

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