5 Main Benefits of Self-Funding

Simply put, a Partially Self-Funded health plan is just an alternative, and often times more effective way of financing your employer sponsored health plan. Outside of “How does it work?” the questions that are most frequently asked are regarding the risks involved with this strategy and limiting the employer’s exposure. It was once thought that partially self-funding your health plan was reserved for only large employers. Employee Benefit Research Institute (EBRI.org) reported that in 2015 there was a 36.8% increase in private sector employers moving to partially self-funding. We don’t see the use of this strategy slowing down any time soon. It’s all about building the self-funded plan the right way in order to reduce the risk, while at the same time creating opportunity for savings.

A well designed self-funded plan built by a knowledgeable advisor will result in healthier employees and money saved over time. The opportunity for nearly all size employers is substantial. Whether your company is large enough to be completely self-funded, or are mid-size and need stop loss, or are smaller and can take advantage of a level-funding type plan, there are self-funding opportunities for all size employers.

In this article, Scott Smeaton shares his insights on what makes self-funded plans beneficial and what Hierl can do to help.

Scott Smeaton, Executive Vice President

“My advice to anyone who is considering moving to a self funded plan from a traditionally funded plan is that it’s not a one year strategy,” said Scott Smeaton, Executive Vice President of Hierl. “Take the time to find a knowledgeable advisor who will help you understand the risks and opportunities with self-funding, and commit to it for at least three years.”

1. Financial Control

The most significant benefit of self-funding is the resulting increased financial control. Self-funded plans often times improve cash flow as funds that would otherwise be held by the insurance carrier for unreported or pending claims are free for use. With a self-funded plan, employers have access to detailed reports and documentation of how every health plan dollar is spent. “We’ve all heard the phrase, we can’t manage what we can’t measure”. Self-funded plans provide access to information that we otherwise would not have.

2. Lower Costs

While traditional fully insured plans allow for a guaranteed monthly cost, meaning the premium stays the same month to month, self-funded plans provide greater flexibility where you only pay for what you use. The disadvantage of a traditional plan is that in a year that the claims and administrative expenses are less than the premium an employer paid – none of that money will be refunded back.

With a partially self-funded plan, you will have administrative and stop loss insurance expenses that will be about 20% of your total budget. The other 80% is purely claims. If at the end of the year your claims were lower than expected, the employer realizes the savings. In a year when claims exceed what is expected, we have stop loss insurance to protect the employer and its employees.

“Wellness efforts and self-funded benefit plans can often work hand in hand in reducing your annual health plan costs,” explained Scott. “I often tell employers who are currently fully insured and have experienced low claims cost that if you believe you can have a positive impact on the health and wellbeing of your employees, then a self-funded plan will be perfect for you because you will be rewarded for wellness efforts and initiatives.”

3. Increased Flexibility

Self-funded plans provide employers the flexibility to design a health benefit plan that addresses specific employee needs as well as company objectives. When compared to traditional plans, self-funded plans allow you to choose your own partners and plan designs. Whether it’s the provider network, the prescription benefit manager, utilization management or centers of excellence manager, vendors can be hand selected from national provider networks to incorporate in the program.

A fully insured plan is required to meet state mandates, state premiums taxes, and ACA taxes among other expenses. Self-funded plans are not subject to the state mandates and either avoids or minimizes many of the taxes.

4. Control Over Plan Design

A downside of traditional plans is being required to select an off-the-shelf plan that your insurance carrier offers.

“One of the things we are doing with our self-funded plans is designing our plans in a way that drives employees to seek out the highest quality but lowest cost providers within their provider network. Provider discounts are great, but there’s even more savings to be gained by creating incentives to seek care from these highest quality, lowest cost providers within that network. Employees are beginning to understand the importance of being better healthcare consumers and it’s paying off. When this happens, it’s only in a self-funded environment that you see the maximum savings from these efforts,” said Scott.

5. Information Management

Self-funded plans provide convenient, secure access to all the necessary information needed to effectively manage plan structure. With a self-funded plan, you can:

  • Track and report data regularly: tracking data allows monthly or quarterly patterns to be detected and acted upon accordingly. Proactive data tracking helps employers stay on top of what is coming next.
  • Utilize predictive plan modeling: past and current claim data can be used to analyze risks and forecast costs allowing for spending waste to be eliminated.

How can Hierl help?

If an employer is moving to a self-funded plan for the first time, Hierl walks clients through a simple process beginning with a risk tolerance analysis to be sure that the plan design keeps the client within their comfort level. From there, Hierl assists with finding a product and design that meets a client’s specific needs. Whether this is a level-funded plan, a captive self-funded plan that limits exposure, or a stop-loss plan that will refund any excess premium at the end of the year, an expert will help determine the best plan for the employer and their employees.

Hierl’s Self-Funded Renewal 101

Here’s an example of the process Hierl guides fully insured clients through as they transition to selffunding. For more information or assistance reach out to an expert at Hierl today.

  • 9-6 months before renewal – Hierl walks clients through all the components of how self-funding works (Self-Funding 101).
  • 6-7 months before the renewal – Hierl facilitates interviews with TPA (Third Party Administrators) in order to select the TPA that best meets the client’s goals and objectives.
  • 5-6 months before renewal – Hierl provides benefit modeling to illustrate self-funding plan design and financial projections in order to compare it to the current fully insured plan.
  • 2-4 months before renewal – Implementation and enrollment is completed.

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