Self-Funding Explained: Top 4 Benefits of Self-Insurance
By: Mike Roche, Director of Business Development
In recent years, more employers have turned to self-funding, also known as self-insurance, as a viable alternative to the fully insured model of health benefits. Traditionally, employers have purchased group health plan policies directly from fully funded insurance companies. While this model is simple, it has its drawbacks, including limited plan options and higher premiums based on the risk profile of the entire group.
Self-funding involves employers directly funding their employees' healthcare claims rather than paying premiums to commercial insurers. This approach can be a better alternative to the traditional fully insured approach, driving greater transparency, control, and cost savings.
Here are the top four reasons why employers are increasingly choosing to self-fund their insurance plans. You can also check out this series of short videos about the benefits of self-funding.
- Access to data
A major benefit of self-funding is that it gives employers unprecedented access to their claims data. In fully insured plans, insurers retain control over claims information. However, self-funded plans give employers transparent access to their claims data. Armed with this data, employers can leverage healthcare analytics to gain insights into utilization patterns, cost trends, and health outcomes in their workforces. These insights then allow employers to tailor their benefit programs to better meet the needs of employees and covered family members.
The Alliance helps our employer-members understand their data through our Smarter HealthSM analysis. This customized report provides deep visibility into where employers’ healthcare dollars are being spent, and where they can save, without compromising the quality of care. This is the first step toward guiding employees and their covered family members to high-value healthcare.
- Drive savings
Another motivator for employers to self-fund is cost containment. Unlike fully insured plans where employers pay fixed premiums regardless of healthcare usage, self-funding allows employers to pay only for the healthcare services their employees use. This provides more control over cash flow as employers are only required to pay claims when the healthcare services are rendered. Greater control over cash flow often leads to extra savings for businesses.
As previously mentioned, with access to detailed claims data, employers can identify cost drivers and implement targeted cost-saving measures. For example, employers can pinpoint areas where healthcare spending can be optimized and encourage employees to go to providers who offer good care at lower costs. This can be done within the benefit plan through steering and tiering, or outside of the plan with cash incentives. This transparency into healthcare spending is a powerful tool for informed decision-making and cost management strategies.
- More control and customization
Self-funding empowers employers with greater control over their health benefit plans. Unlike traditional insurance where plans are standardized, self-funding gives employers the opportunity to customize their benefits to meet their needs and the needs of their employees and covered family members. With self-funding, employers can contract directly with provider networks, negotiate claims, and select pharmacy benefit managers best suited to meet the unique healthcare needs of employees.
The Alliance is an advocate for our employer-members and our primary focus is designing customizable provider networks, Smarter NetworksSM, that optimize quality and savings. Our networks include over 39,000 healthcare across the Midwest to provide a broad range of choice and geographic coverage. The Alliance continues to expand our provider networks to improve access to high-value healthcare and offer employers even more choice, control, and cost-savings.
Our Comprehensive Network is our broadest network option for employers seeking widespread coverage and provider options for their employees and covered family members. This network minimizes the chances of out-of-network charges against the plan while protecting plan participants from surprise bills.
The Alliance Premier Networks are customizable networks that offer employers the control to design a multi-tier benefit plan. Tiers essentially provide a preferred option, a secondary preferred option (the Comprehensive Network), and all other out-of-network options. This does not limit where employees can choose to seek care, but by using incentives, it allows employers to direct employees toward higher-value care.
Employers may want to offer more or less choice depending on where their employees and covered family members live. The Alliance Premier Networks can support up to four customizable tiers. Tiering the benefit plan can incentivize your employees to choose cost-effective providers. This, in turn, can reduce the plan spend, saving both employers and employees money. The Alliance Premier Networks are the best option for employers that want to offer the widest range of choice possible.
- Flexibility
Self-funding allows companies to tailor their health benefit plans to better meet the unique needs of their workforce while maintaining control over plan terms to enhance employee satisfaction. Self-funding also allows employers to work with the benefit partners they choose. Some examples of benefit partners needed to self-fund successfully are brokers, third-party administrators (TPAs), pharmacy benefits managers (PBMs), and networks (like The Alliance). You can read more about how to choose the right benefit partners for your organization here.
The Alliance collaborates with any benefit vendor, empowering employers to select the vendor that best suits their preferences and requirements. This enables employers to forge strategic partnerships that optimize their overall benefits package and support their employees and covered family members effectively.
Embracing Self-Funding: Advantages for Employers and Employees
Self-funding represents a compelling shift for employers seeking greater control, transparency, and cost savings in their health benefit plans. By moving away from traditional fully insured models, employers can access detailed claims data, enabling informed decision-making to optimize healthcare spending and improve outcomes for employees and covered family members. Self-funding also offers flexibility in plan customization, allowing employers to tailor benefits and collaborate with preferred benefit partners. This flexibility not only enhances benefits and employee satisfaction but also supports strategic cost management initiatives. As more employers recognize these advantages, self-funding continues to emerge as a preferred choice for designing comprehensive, efficient, and employee-centric health benefits.
Reach out to me to learn how The Alliance can help you get more for your healthcare dollar by self-funding smart.
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