Self-funded benefit plans save employers a lot of money. But how does that savings happen? While self-funding produces savings in some obvious ways, there are other savings avenues that you may not be as familiar with. Here are the top 7 ways employers can save through self-funding:
- Not Paying for Unused Healthcare
In traditional fully-insured benefit plans, the employer pays a monthly premium for employees regardless of whether the employee actually uses the benefits. In a self-funded plan, employers only pay claims as they are incurred, saving them from paying for unused healthcare.
- Savings from Cost Control Programs
Employers may use various programs to manage and lower the cost of employee healthcare, such as case management, telemedicine, wellness, or bill audit review programs. When these programs are used for a fully-insured plan, the carrier keeps the savings, but when used in a self-funded plan, the savings go right back into the employer’s pocket. The Self Insurance Education Foundation estimates these pocketed savings can be 10 – 25% for the employer.
- Not Paying for Irrelevant Benefits
When employers choose a self-funded benefit plan, the TPA builds a plan that is customized to the needs of the employer. Because each employer has unique needs, this custom plan will prevent them from paying for benefits that aren’t relevant. For example, a veterinarian office may find rabies vaccines to be an important benefit, while a construction company wouldn’t. As a result, when employers self-fund, their custom plan ensures they only pay for the benefits that are relevant and important for their employees.
- State Tax Savings
Fully insured plans are governed by state laws and therefore incur the related taxes. However, since self-funded plans are governed by ERISA, employers with self-funded plans are exempt from state taxes.
- Compliance Savings
The ACA, HIPAA, and other legislation have several compliance requirements, and non-compliance has a big price tag attached. By partnering with BMA, employers not only receive a custom-designed plan, but also a partner for staying compliant with the various legislation. By helping employers stay compliant, employers can save thousands of dollars in compliance-related fines and penalties.
- Large Claim Savings
In any insurance arrangement, there is always the risk of incurring a high cost claim. However, self-funding saves employers from those costs through the use of stop-loss insurance. This built-in insurance is designed to protect the employer in the case of a large claim and acts as a safety net to guard against large financial losses. Fully insured carriers take a similar approach to protect themselves from high cost claims, but with self-funding, the protection is specifically designed to protect the employer and to save them from high claim spending.
- Saving the Savings
At the end of a plan year, an employer is likely to find that they’ve built up good savings from paying for claims as incurred or from other cost-control methods. Unlike a fully insured plan where the savings are kept by the carrier, self-funded plans let the employer to carry over those savings to the next year for next year’s healthcare expenses.
Self-Funding provides many avenues through which an employer can reduce their spending on healthcare costs. Because of these various methods, employers can realize strong savings which snowballs year after year.
For help building an employee benefits package that starts you on the path to strong savings, contact us.