Fact from Fiction regarding Self-funding healthcare
Cher Bumps 2009-06-24
According to Employee Benefit Advisor, more than half of all employer groups with more than 200 employees partially or completely self-fund their health care plans. Even with this pervasiveness in the market place, there are still misconceptions about self-funding.
One misconception is small employers cannot handle the risk of self-funding. This is simply not true. Obviously, if a company has over 500 employees, self-funding should be a given, the savings are just too great to forego. But, employers with as few as 50 employees can definitely find reinsurance with financially sound carriers to offset a portion of the risk. A good benefits consultant can explain the risks and fluctuations to the employer and help ensure the company has sufficient cash flow to protect everyone from surprises.
Some people say self-funded health care claims are too unpredictable, and the savings isn’t worth it. It is true that health care claim costs will go up and down from year to year, which can make budgeting a bit more difficult, but the savings should more than outweigh the concerns. If you start with the premiums of a fully insured policy, you have to remove the embedded costs of the insurance carrier’s marketing efforts, their risk charge and a very gracious profit margin before you can even begin to compare to self-funded costs. Additionally, the biggest underwriting profits for insurance carriers are in the middle market 50 - 500 employee lives.
There is also the concern that self-insured plans are more time consuming and disruptive to HR staff and employees. If you are using a knowledgeable benefits consultant, a good TPA (third party administrator), and a professional and financially sound reinsurance carrier; then the processes should be very similar to a fully insured health care plan. These three vendors will help ensure the plan is well designed to save costs, but still offer benefits that are important and meaningful to your employees. A self-funded plan can also change the underlying reinsurance carrier without disruption to its employees. If you move carriers in the fully insured world, the changes are very disruptive to the employees – different ID cards, different Pharmacy Benefit Managers, different network of providers, etc.
This might be the year to take the opportunity to talk to your benefits consultant about how a self-funded healthcare plan might save your company money. Ask your consultant to provide you a quote so you can compare and contrast the differences for yourself.