By Melina Kambitsi, Ph.D., Vice President of Business Development and Member Services
Many employers are intrigued by the opportunities and savings that come with self-funding your health benefit plan. Here’s how you can move from being fully-insured to taking control through self-funding.
Understand Who Can Self-Fund
is widely used by businesses, municipalities, school districts, unions, Taft-Hartley insurance trusts and other organizations.
Three out of five American workers are covered by a fully or partially self-funded health plan. In recent years, many organizations with less than 100 employees have also embraced self-funding.
Tap Into Self-Funding Experience
You can tap into experts’ advice to guide your transition.
You want a broker consultant who understands self-funding and stays current on the latest issues. A good broker will put his or her knowledge to work on your behalf to check your data, analyze your options and find strong partners.
Employers who have already switched to self-funding are another great resource. Ask questions about what worked – and what didn’t – when they made the transition. If possible, look for employers in similar industries or with similar workforce characteristics.
Analyze the Opportunity
Your broker should be able to provide a financial analysis of your health benefit plan and your workforce to see how self-funding compares to being fully insured. It’s your job to ask questions and dig into details. Along the way, make sure you fully understand its impact on cash flow and cash reserves.
Your goal is to feel confident that you understand the financial risks and rewards of self-funding, as well as any challenges that may arise along the way.
Understand Stop-Loss Insurance
Medical stop-loss insurance,
also known as reinsurance, provides a safety net for your self-funded health plan by setting the maximum amount of claims that you could be required to cover during the plan year. Stop-loss premiums can be roughly 10 to 20 percent of the cost of your medical claims; the impact of failing to set the right coverage levels can be much higher.
Two types of stop-loss are required:
- Specific stop loss protects the plan against high claims from one individual.
- Aggregate stop loss limits the total claims that an employer pays in a plan year.
You also have the option of joining a medical stop-loss insurance captive, like The Alliance’s ShareCap™
captive, so you can work with a group of employers to reinsure a portion of your risk.
Pick Powerful Partners
Picking the right partners will impact how employees view your plan, whether your plan achieves your financial goals and whether the plan improves employee health and wellness.
Three partners are critical:
- A third-party administrator (TPA) to pay claims and administer your health benefit plan.
- A pharmacy benefits manager (PBM) to administer your prescription drug plan.
- A network to negotiate discounts with the health care providers who provide care to enrollees.
Depending on how you pursue your goals, you may want additional partners for specific services. An example is a care management program to coordinate care and reduce costs for employees with chronic conditions like diabetes.
Design Your Plan
Self-funding allows you to create a plan that matches the needs of your workforce and the goals of your organization. It also lets you adjust for the realities of your marketplace for employee recruitment and retention.
When you’re self-funded, plan elements you can set include:
- Coverage levels
- Employee out-of-pocket costs, including deductibles and co-pays.
- Wellness rewards for employees who participate in fitness or nutrition programs.
- Incentives for employees to use high-quality, fairly priced care.
Self-funded plans are covered by federal ERISA rules, so state mandates and assessments will not apply in most circumstances.
Weigh Turnkey Options
Switching to self-funding can be especially daunting for smaller employers. “Turnkey” programs can help you make the transition.
For example, Single Source Self-Funding
from The Alliance offers a TPA, PBM, provider network and stop-loss coverage. It also gives you a blueprint for the self-funding transition.
Brokers must be certified to offer Single Source Self-Funding, which helps ensure you have access to self-funding expertise.
Make Your Plan Worthwhile
Once you successfully switch to self-funding, you own your plan.
That means you get to make the decisions that can improve employee health, manage the trend of health care costs and make your investment in employee health pay off.