Self-funding has been around since the 1970’s and in today’s market, Self-funding is getting a lot of attention again as rates continue to increase, along with higher deductibles and out of pocket maximums. Self-funding is a strategy in which an employer funds employee and dependent health care claims instead of paying monthly premiums to a health insurance company. There are several advantages in a self-funded arrangement including; employer retains annual plan cost savings, employer sees the actual costs of the claims (transparency), and employer can customize the benefit plan design.
Self-funded plans include individual and aggregate reinsurance to protect the employer from large claims. Additionally, the plan sponsor (employer) pays fixed fees to a third party administrator to answer benefit questions for members, process and pay claims, verify eligibility and pre-authorize claims, and maintain the preferred provider network, along with additional/optional services.
Traditionally larger companies have Self-funded, but as the market continues to find ways to beat the health care trends, smaller employers have engaged. An employer considering Self-funding will want to examine their risk philosophy, understand their cash flow (monthly claims funding can fluctuate month to month versus fixed monthly premium payments) and have an employee population close or larger than 100 eligible employees and a fairly healthy population. (Talk to DDI Benefits if you’d like to learn more about your Self-funding opportunities.)
Employers with less than 100 enrolled employees may want to consider a Level-funded plan. In a Level-funded plan the employer pays a static monthly amount to the carrier to cover claims costs, and at the end of the contract year the claims are aggregated and if the employer over-funded with the monthly amounts, they are reimbursed the difference (minus up to 50% that the carrier retains.) In this strategy employers have an opportunity to save money if they have a good claims year, and they are protected against a poor claims year. In Level-funding, the employer would not owe more than what they paid on a monthly basis, which are the expected claims costs. If claims exceed the annual expected amount, the carrier takes the hit on that plan year.
