Self-Funding 101: Taking Control of Employee Health Benefits

When it comes to providing healthcare benefits to employees, self-funding is a strategy that offers flexibility and financial control for employers. In this approach, the employer assumes the financial risk by directly paying the claims for healthcare services, while an insurance company manages the administrative aspects of the plan.

To understand self-funding better, it's helpful to compare it with fully insured health plans. In a fully insured plan, the employer pays a fixed premium to an insurance carrier, which assumes the financial and legal risks associated with providing healthcare benefits. However, in a self-funded plan, over 60% of employees are enrolled, and the employer takes on the financial responsibility for paying their employees' healthcare claims. This empowers employers to customize plans, engage in risk management, lower costs, and even retain profits. Additionally, to protect against catastrophic claims, employers can utilize a medical stop loss captive, such as an Employee Benefit Captive, to effectively control costs.

So, what does a self-funded healthcare plan look like? To successfully create and manage a comprehensive healthcare plan, self-insured businesses need a strong team of experts. Let's take a closer look at the key players:

1. Health Plan Consultants (Brokers): These trusted advisors and consultants play a crucial role in managing service providers that handle provider and facility claim payment, as well as risk mitigation strategies.
2. Health Plan Service Providers: A self-funded health plan typically has two cost centers: medical and prescription costs (variable costs), and administration fees (fixed costs). To manage these components, businesses typically engage the following administrative service providers:

• Health Plan Consultants: Responsible for ensuring the smooth operation of the health plan for both the business and its employees. They carefully select and integrate the health plan service providers.
• Third-Party Administrator (TPA): The TPA handles employee medical and prescription claims for reporting and funding purposes. Their efficient operation is crucial to the success of the plan.
• Pharmacy Benefits Manager (PBM): The PBM oversees all aspects of prescription utilization. They serve as the first line of defense, as prescription usage is an important indicator of the plan's risk profile.
• Risk Mitigation/Wellness Services: Various service providers specialize in controlling medical and prescription costs through risk mitigation and wellness programs. The success of these providers depends on the specific goals and culture of each business.

Now, the question arises: Is self-funding the right choice for your company? While self-insurance offers many advantages, it's not suitable for every organization.

Consider the following questions to determine if self-funding aligns with your company's circumstances:

1. Do we have a reliable business cash flow? Given the potential month-to-month claims volatility, accurately accounting for the plan's claim liability is crucial.
2. Are we willing to engage in risk mitigation tactics? While you won't need to hire staff dedicated solely to managing the plan, employers must be committed to controlling costs and participating in risk management initiatives.
3. Can we commit to at least a 3-year investment? Captive insurance companies, often used for self-funding, are long-term strategic plans for managing risks and may not yield immediate cost savings.

Self-funding provides a flexible and cost-effective alternative to pre-packaged full insurance health plans. By assuming the financial risk, employers can tailor healthcare benefits to their employees' needs, lower costs, and take control of their healthcare expenditure.

However, it's essential to carefully evaluate your business's financial stability, risk management capabilities, and long-term commitment before deciding if self-funding is the right fit for your company.

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