Common Misconceptions About Self-Funding

As a health insurance advisor, I often come across decision-makers responsible for their organization's health insurance but need clarification about self-funding.

Understandably, concerns arise when considering a new approach, but addressing these misconceptions and exploring the potential benefits is important. In this article, I want to debunk two common misconceptions:

Misconception 1:?"We're not big enough to self-fund."

One of the most prevalent misconceptions is that only large organizations with substantial employee populations can self-fund their health insurance plans. This misconception often stems from a need to understand how self-funding works. In reality, groups with as few as 25 employees (or less) can successfully implement a self-funded plan if they know its mechanics.

Self-funding involves taking on the financial risk of providing health benefits to your employees. Rather than paying premiums to an insurance carrier, you set aside funds to cover the cost of claims and other administrative expenses. By assuming this responsibility, you gain greater control over their healthcare spending and have the potential to save significant amounts of money.

To alleviate concerns about the size, you must work with an experienced benefits consultant who can help you tailor a self-funded plan to meet your organization's specific needs and risk tolerance.

Misconception 2: "Self-funding is too risky."

Another common misconception surrounding self-funding is the belief that it is inherently risky. Some employers have been led to believe they have "unlimited liability" with a self-funded plan. Understandably, decision-makers are concerned about the potential financial exposure associated with self-funding. However, this perception often arises from a misunderstanding of the risk management strategies that can effectively mitigate these risks.

While self-funding does involve assuming a level of financial risk, it is important to remember that this risk can be managed through various mechanisms. Stop-loss insurance, for example, protects against catastrophic claims that exceed a certain threshold. This coverage ensures that you are not solely responsible for bearing the burden of unexpectedly high medical expenses.

Additionally, self-funded plans enable organizations to implement proactive cost-containment strategies. By accessing detailed claims data and utilizing healthcare analytics, you can identify areas of high utilization or potential cost savings. With this information, you can implement wellness programs, educate employees on the appropriate utilization of healthcare services, and negotiate favorable rates with providers.

Contrary to popular belief, what is truly risky is accepting the year-after-year increases of 8-10% on fully-insured plans. These escalating costs can substantially impact your bottom line, limiting your ability to allocate resources to other critical areas. By exploring the self-funding option, you can stabilize costs and achieve long-term savings.

As you head into your next health insurance renewal, you must understand the misconceptions surrounding self-funding and explore its potential benefits.

Organizations need not be deterred by their size, as companies with less than 50 employees can successfully implement self-funding. With the guidance of an experienced benefits advisor, you can tailor self-funded plans to your unique needs, taking advantage of the cost-saving opportunities and control over healthcare spending that self-funding provides.

Finally, while self-funding does involve an element of risk, the risk can be effectively managed through strategies such as stop-loss insurance and other proactive cost-containment measures. By taking control of your healthcare costs, you can break free from the ever-increasing premiums cycle and ensure your organization's financial sustainability.