Thinking about self-funding? Start with these 10 questions
Should you pursue self-funding savings for employee health benefits? Or should you stick with “business as usual” in the fully-insured world?
Answering these 10 questions can help you decide whether self-funding will work for you.
- Have you checked your data? You need data to know if self-funding will work, yet you could have trouble accessing your health plan’s data unless you’re self-funded. Fortunately, a broker with self-funding expertise can help you gather and analyze data that will indicate whether self-funding can pay off for you.
- Do you want benefits that improve workers’ health? Your data can also reveal how to use benefit design to give employees more health, not just more health care. You might want to design benefits that lower the out-of-pocket cost of prescription drugs for chronic conditions, for example. Investing in employee well-being can also help increase productivity to benefit the bottom line.
- Are you big enough to self-fund? Self-funding was once reserved for “jumbo” companies, but that’s not the case today. While it’s true that self-funding becomes more prevalent as employer size grows, a growing number of businesses with less than 100 employees are enjoying the benefits of self-funding. The Alliance cooperative of self-funded employers includes organizations with less than 50 enrollees.
- Are you willing to take on a bigger administrative role? Self-funded employers must actively manage their health benefit plans. For day-to-day tasks, you can partner with a third-party administrator (TPA) and other vendors to handle claims processing and other tasks.
- Can you handle risk to get savings? When you self-fund, you typically save part or all of the money that would otherwise be labeled “profits” for a fully insured plan. Savings can be as high as 12 percent annually, according to an article published in the March 9, 2015 issue of BenefitsPRO magazine. But you also take on the risk that health plan costs will be higher than expected. Your broker will help you purchase stop-loss insurance to mitigate this risk.
- Do you have the right expertise? You need a savvy broker or consultant to help you design a cost-effective plan that meets your goals while minimizing your risk. You can use a request-for-proposal (RFP) process to find an experienced self-funding adviser who is a good fit for your organization.
- Do you want to avoid triggering the Cadillac tax? Self-funding offers flexibility. That makes it easier for you to use a consumer-directed health plan (CDHP) to meet employee needs without triggering the 40 percent excise tax, also known as the Cadillac tax. This tax requires employers to pay 40 percent of the value of employer-sponsored health coverage that exceeds certain benefit thresholds when it takes effect in 2020.
- Will you help employees become better health care consumers? Employees who are better health care consumers ask questions that help them avoid unnecessary care, check the cost before having a procedure and seek out quality care. Strong self-funding partners provide information that supports informed decisions, which can help employees transition to high-deductible health plans (HDHPs) that help your plan save money.
- Are you looking for a different way to buy health care? Self-funding may offer new options for selecting providers and paying for care. For example, self-funded employers who use The Alliance’s QualityPath program guide employees to doctors, clinics and hospitals that meet quality measures and take steps that lead to better results for patients. Patients get high-quality care with lower out-of-pocket costs (sometimes nothing) while the health plan gets significant savings on selected surgeries and tests that are covered by a warranty.
- Do control and flexibility matter to you? When you’re self-funded, your plan design can be as unique as your company. If you want a plan that can adapt to the demands of your business and your workforce, self-funding may be the right choice for you.