Employers looking to gain control over their benefits programs are choosing self funded insurance plans more and more. They are an excellent alternative to traditional fully insured health plans and offer many advantages, including lower administrative costs, greater flexibility in plan design and greater financial accountability.
What is a self-insured health plan?
A self-funded healthcare plan is a system in which the employer pays health care claims using its own money and that of the employees. These funds will be deposited into a special trust account to cover claims. Employers typically work with a third-party administrator or broker to help manage the process. They also ensure that the plan is designed properly for their employees and budget.
What is a Self Funded Insurance Plan?
A self-funded insurance plan is a medical, dental and vision benefit program that uses an employer's own money to pay for health care services. This is an ideal option for smaller business owners, who can manage their expenses. This can be used for employees who have no other option of coverage such as Medicare or Medicaid.
What is a Self Funded Medical Plan (SFMP)?
A health insurance plan which combines the employee-sponsored component of self-insurance with a contract for group coverage with an external carrier. Often the employer contracts with an outside TPA to handle the administration of the self-insured components, such as enrollment, claims processing and network drafting.
The employer's administrative costs are largely comparable to those of a fully-insured plan. Self-funded claims will be billed on a monthly basis, not annually as with fully insured claims. These monthly expenses include administrative costs, stop-loss coverage and the variable cost associated with healthcare.
Shock Claims Are a Real Threat to Self-Funding
Shock claims, as the name implies are catastrophic claims large enough to derail self-funded plans. These large claims are often more than half a milllion dollars over a number of years for the healthcare of one individual. Shock claims also can have an impact on an employer's financial situation, because they can drain their reserves and create a negative cashflow.
Understanding Self-Funded Health Insurance
Self-funded medical plans may offer many benefits but they aren't for everyone. The risk of high-cost claims is a concern for all employers, and it is important to consider the pros and cons before selecting a plan.
With a self funded health plan, employers can select the most cost-effective benefit package to offer their workforce. They also have the ability to improve employee wellness and reduce costs. It allows employers to get more involved in population-management strategies, such a smoking cessation and weight loss programs. This is an excellent option for small- and medium-sized companies that want to reduce their employees' health care costs, while also encouraging healthy behavior and improving the quality of their workers' care.