Self-funding, also known as self-insured insurance is a plan in which the employer takes on the financial risk of providing certain healthcare benefits to the employees. With self-funding insurance plan, organizations pay for the healthcare expenses out-of-pocket as they are received. Giant companies have long viewed self-funded healthcare plans as a good option for offering employer-sponsored benefits. However, small and mid-size businesses have restrained themselves from taking the plunge, choosing the true model of a fully insured plan.
When an employer opts to provide its employees the healthcare benefits through self-funding, employer sets up a special trust fund that is designed to designate money to later pay incurred claims. The employers depend on the third-party administrators to process claims on their behalf. So let us have a look at the reasons why employers today are switching more to self-insured health plans for cost reduction:
Cost Savings
Self-funded employers who opt to choose the service of third party administrators have been found to save more money on their health plans per person when compared with traditional form of insurance. This is because third party administrators work to manage an employer’s plan on the basis of employer’s specifications. Through individualized plan management, self-funding insurance can save employers a lot of money without providing any schemes. Simply put, switching to self-insured health plans for cost reduction can have a positive impact on an employer’s bottom line.
Enhanced Flexibility
When it comes to health insurance, there is no such thing like one-size-fits-all plan. Since your company is unique, so should be your health plan. Therefore, in order to meet the unique requirements of your employees, opting for a self-insured health plan provides you better flexibility and control over the terms. However with self-funding insurance, employers get the opportunity to work directly with a third party administrator to design their benefits.
Increased Cash Flow
Enhanced cash flow accounts for one of the biggest reasons employers are choosing to switch to self-funded insurance. Unlike the traditional health insurance plans that require employers to pre-pay potential claims through monthly premiums, a self-funded health insurance plan gives businesses more flexibility. Most of the employers who use self-insured health plans find that they have better control over their cash flow and have a higher possibility for extra savings.
Cost Control from Reduced Savings
Employers who are using the self-funded insurance plans are not responsible for paying full state premium taxes, which can range between 2-3% of the monthly premium cost. With a self-funded insurance plan, premiums are only collected with excess loss coverage which is usually a small fraction of the standard insured premium. This exemplifies that premiums are considerably reduced for the employers who have self-funding insurance.
Employers look for more flexibility in devising a plan suitable for their employees. Today, more and more employers are moving to self-funded healthcare insurance and the trend is likely to continue as employers continue to seek health plans that satisfy their employees much more than the commercial options. So, if your aim is to take proper control of your benefits program and skyrocketing healthcare costs, it is noteworthy to assess if self-insured health plans for cost reduction is the ultimate solution for you. However, if you are not well-apprised with self-funding insurance it is quintessential to ask more and more questions. Therefore, it is very important to seek guidance of an experienced insurance professional who can provide you a detailed analysis of your liability, and only then you will be informed and all set to decide whether the strategy is perfect for you.
Diane Smith is a digital marketing professional with over 5 years of experience. She is incredibly passionate about financing, insurance and business services with an inclination towards software and technology.
