Self-Funding Basics
Do you want to learn more about self-funding or see if it’s right for your company? Read on to discover the basics and advantages of self-funding your benefits plan.
What is self-funding?
Self-funding, also known as self-insurance, is an alternative method of providing employee health benefits. In a self-funded plan, employers establish an account to pay their employees’ claims directly and fund that account when claims are ready to be paid. Employers who self-fund typically seek the assistance of a third party administrator to oversee claims payment and other administrative services. With a conventional fully-insured plan, employers pay fixed premiums to an insurance company who is responsible for the payment of employees’ claims and who may keep any surplus that remains at the end of the year.
What are the advantages of self-funding?
Flexible Plan Design
- Employers create the plan design and select the benefit features that will suit their company and employees
- A self-funded plan is exempt from most state mandates under ERISA
Control Cash Flow
- Employers pay claims as they are presented, not in advance based on insurance carrier projections
Savings and Cost Reduction
- Reduce administration and insurance costs of fully-insured arrangements
- Realize immediate savings with the elimination of premium taxes
I’m an employer. If my company decides to self-fund is there a way to protect us if there are large claims?
Yes, employers can protect their company from exposure to unforeseen claims through stop-loss insurance. While the employer pays for the medical services that their employees use, stop-loss insurance is available to cap costs. Stop-loss insurance may be obtained by a broker or third party administrator on the employer’s behalf. Coverage is available at various individual and aggregate group levels.
Is self-funding right for everyone?
Self-funding is a great fit for companies that:
- Want to closely and carefully manage health benefit expenditures and reduce costs
- Want the cash flow advantages of paying claims directly
- Meet the criteria for stop-loss coverage
Want to take the next step?
Contact your broker or consultant and let them know that you would like to learn more about self-funding. Your broker or consultant will know what information is needed to obtain a proposal that includes the benefits, providers and stop-loss insurance that is best suited to your company.
