Knowledge is Power
what is self-funded insurance?
Self-Funded Insurance: Defined
Self-funded insurance is an innovative health plan model that cuts out the traditional insurance carrier and gives employers more control over their employees’ healthcare benefits. Nearly 156,199,800 people (which equals out to just under 50% of our nation’s population), receive health insurance through their employer, according to the Kaiser Family’s Foundation (KFF) most recent report. Of those employers, 47% have self-funded insurance or level-funded health insurance. In this model, the employer (as opposed to the insurance carrier) assumes the financial risk. These risks can be managed with products like stop-loss insurance and claims repricing. The employer pays for employees’ individual healthcare claims as they occur directly to the healthcare provider rather than paying an insurance carrier a monthly premium for forecasted claims.
So how does this differ from other types of employer-sponsored health insurance?
Self-funded vs. Traditional vs. Level-funded Healthcare Plans
- In a self-funded health plan, your employer only pays for medical claims as they happen and pays your providers (aka, doctors, facilities, etc.) directly.
- In a traditional health plan, your employer pays a monthly premium to an insurance company to cover the cost of potential medical claims and a profit for the health plan. The insurance company has preset cost agreements with hospitals and providers, and manages the payment.
- In a level-funded health plan, the employer benefits from the flexibility and cost-savings of a self-funded plan combined with the stability of a traditional plan. The employer pays the insurance company a monthly fee based on forecasted claim costs for their employees. At the end of the year if the actual claim costs were lower than the premiums paid, the employer receives a refund.
How does self-funded insurance work?
- The employer has the power to design the health plan that best fits employees’ needs.
- The employer pays health plan members’ medical claims to the healthcare provider rather than paying an insurance carrier a monthly premium.
- The employer has the discretion on what additional services and benefits to offer such as employee wellness programs, clinical care management, member engagement programs and more.
- The employer can either manage their plan in-house or hire a third-party administrator (TPA). The TPA supports the employer with claims and eligibility management, issuing ID cards, providing utilization management and review and more.
- With access to claims data, employers can make better decisions around health benefits and establish engagement strategies that make a real impact on cost-savings and employees’ overall wellbeing.
Benefits of Self-Funded
- Flexibility: Employers can create plans based on the needs of their employees instead of buying an out-of-the-box plan from a traditional carrier.
- Cost savings: Self-funded models cost between 15-20% less than traditional benefits plans, according to the )
- Cash flow: Because employers don’t pay insurance carriers a monthly premium, they tend to have more cash on hand.
- Insight: Self-funded employer sponsored healthcare provides a level of transparency into claim expenses that isn’t provided by traditional insurance carriers.
Self-funded Insurance Management and Administration
Employers who opt to self-fund their health plan can either administer claims and manage the plan in-house, or work with a third-party administrator (TPA). A specializing in self-funded benefits assists in the management of and administration for these employer sponsored plans. This includes administrative services such as plan design assistance, enrollment and eligibility and claims management and adjudication. Self-funded health plan administrators also provide an array of supplemental services, such as utilization review, care management, provider network options, pharmacy benefit management programs, claims repricing support, employee education and engagement programs and more.
Regulation and Applicable Laws
Self-insured group health plans applicable federal laws, and are regulated by the Employee Retirement Income Security Act (ERISA). Self-funded plans are also compliant with the following policies: Health Insurance Portability and Accountability Act (HIPAA), Consolidated Omnibus Budget Reconciliation Act (COBRA), the Americans with Disabilities Act (ADA), the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Civil Rights Act, and various budget reconciliation acts such as Tax Equity and Fiscal Responsibility Act (TEFRA), Deficit Reduction Act (DEFRA), and Economic Recovery Tax Act (ERTA)