From Fully-Insured to Self-Funded: Is Your Business Ready for the Transition?

When it comes to health insurance plans, mid-sized businesses often encounter financial struggles and limitations with fully-insured options.

Fully-funded plans come with escalating premiums and minimal plan design flexibility. Unfortunately, as healthcare costs continue to rise, these plans may leave you financially stressed without the enhanced coverage or control you need to keep your business running smoothly.

Here are some specific challenges you might be facing with your fully-insured health plan:

1. Escalating premiums: Each year, premiums seem to get higher and higher. This is especially true if your workforce is aging or you have a high-risk pool of employees. Traditional fully-insured plans don't allow for the freedom to negotiate rates so you may be stuck with steep premium increases year after year.
2. Limited plan design: Fully-insured plans typically offer only “off-the-shelf” plan options, leaving you little room for customization. This can be frustrating if your employees have diverse healthcare needs.
3. Little control over cost drivers: With fully-insured plans, you're at the mercy of your insurance carrier. You have no control over the utilization of healthcare services, ongoing market trends, or the provider network. This can make it difficult to budget accurately or to contain costs.

Fully-insured health plans can be a burden on mid-sized businesses. However, there is another option: self-funding.

Transitioning to a self-funded approach can offer cost savings and benefits flexibility.

If you're considering transitioning to a self-funded health plan, assessing your company's financial stability and risk tolerance is important before making any changes.

To start, it's crucial to understand your company's cash flow and reserves clearly. Self-funded health insurance plans require that your business has adequate funds to cover claims and administrative fees. This means you need to have enough reserves to manage any fluctuations in your employees' healthcare spending.

When evaluating your financial stability, consider your company's overall financial health and vulnerability to market fluctuations. Consider the size of your team, expected growth, and other factors that may impact your financial outlook.

Additionally, it's important to assess your company's risk tolerance. One way to do this is by analyzing historical claims data and predicting future healthcare costs. This can help you understand the potential risks of self-funding and prepare accordingly.

Transitioning From A Fully-Insured Health Plan To A Self-Funded One

With this transition, you will gain greater control over plan design, benefits, and cost drivers. Here are some of the key benefits of self-funded health plans:

1. Cost savings: One of the most significant advantages of self-funding is the potential for cost savings. By assuming some of the risk and responsibility of healthcare costs, you can avoid the markups and administrative fees of working with an insurance carrier. Plus, you can customize your plan design to fit the unique needs of your employees, potentially reducing unnecessary expenses.
2. Plan customization: With a self-funded health plan, you're not limited to the "off-the-shelf" options offered by insurance carriers. Instead, you can tailor your plan design to fit the specific needs of your workforce. This could include adding or tweaking benefits to meet your employees' healthcare needs, such as wellness programs and mental health resources.
3. Benefits control: Self-funding gives you greater control over your benefits dollars. You can choose to invest in areas that will significantly impact your employees' health rather than being subject to the limitations of a fully-insured plan. This could include preventive care, chronic disease management, and other initiatives that promote good health.

Now that you are considering a transition to self-funding, here are some key steps to take:

• Analyze your current and historical healthcare costs to identify cost drivers and patterns.
• Consider the demographics of your workforce and their healthcare needs to predict future costs.
• Assess your financial stability and risk tolerance to ensure that self-funding is viable.
• Choose the right third-party administrators and advisors to help you manage your plan effectively.
• Maintain open and transparent communication with your employees. Be sure to communicate the change prior to and throughout the transition to build trust and ensure buy-in.

Of course, with greater control comes greater responsibility. Self-funding requires careful planning, analysis, and risk management to ensure your plan is sustainable and effective. But for mid-sized businesses ready to take the leap, the benefits of self-funding can be significant.