Self-funded insurance is becoming more popular with employers today—especially those operating in the public sector, as the benefits of self-funding many of the time outweigh the costs. Education is key! Only employers that have an experienced self-funding consultant in their corner are able to understand the financial benefits, realize the full potential, and reap the rewards of self-funding.
Rewards include enhanced rate stabilization, value-add health and wellness programs, and the ability to offer customized benefit plans that provide the exact type of coverage and cost-share that fits your unique organizational and employee needs.
Making the decision to self-fund is primarily a financial one. If you’re curious about self-funding and whether it might be right for your organization, this article is for you! Continue on to learn the important “need to knows” about self-funding to help you decide whether it would be a smart move for your organization.
How Does Self-Funding Work?
With self-funding, whether it’s medical, dental or other insurance plans, employers pay the true cost of claims instead of paying a fully insured premium (or rate) to an insurance company. If your plan is self-funded, your actuarial team projects and sets a premium equivalent (rates) for the plan year, which is the anticipated healthcare costs of your population.
If you are on target (i.e. less than 100% loss ratio for contributions vs claims and administrative expenses) for that premium equivalent, you’ve accurately covered the cost of health care for your population for the plan year.
If you have fewer costs than expected, there is a surplus of funds that STAY WITH THE EMPLOYER. These funds can build year after year and be used to offset years of higher than anticipated claims costs.
In a traditional fully insured model, if there are excess funds (i.e. you’ve had a good year with employees consuming less healthcare than predicted) those funds would remain with the carrier — and you may get a rate pass for the next year.
What Are the Benefits of Self-Funding?
Self-funding allows an employer to have more control over plan designs, network options, disease management and other cost control measures to improve the overall health of your employees and once again, your budget. An employer immediately saves 2% in premium tax and gains full control over the rate and budget setting, as well as administrative fees and profit margins built-in from the insurance carrier. This is due to the reduction of various insurance costs and risk expenses incurred by third-party administrators (insurance companies).
Having the choice of well-defined and established options is key. Making decisions based on your population’s unique needs is essential. If done with careful consideration, and a full understanding of your population’s health, self-funding can result in stabilized benefit plans and long-term rates.
Is There Risk Involved?
Yes, there is risk involved, because you are paying the true healthcare costs (claims) of your population. The good news is that this risk is mitigated by stop-loss insurance (specific, aggregate-or both), which caps the risk level for the employer. It can also be mitigated further by implementing value add health and wellness programs that improve population health.
If you are considering a self-funded insurance plan option, it’s very important to partner with a trusted consultant or broker to advise you on how best to mitigate that risk. They can help you reduce the likelihood of claims, improve the health of your population, and build a long-term financial strategy for your employee benefits package.
When Self-Funding Makes Sense
Taking the financial reigns over your benefit plans through self-funding may seem like a daunting task, but thousands of public sector employers have shown it’s not only possible but a viable, easily managed long-term option.
Employers ideal for self-funding have at least 150+ benefit-eligible lives, and are looking for greater cost savings, and control over their employee benefits package.
If you’re over 150 benefit-eligible lives and are considering self-funding, be sure to consult with an expert to see if it’s the right path for your organization!
We’re Here to Help With Your Self-Funding Questions and Needs
Valley Schools has over 30+ years of experience in self-funding, helping a multitude of public sector employer clients realize how advantageous this avenue can be. Employee wellness, a hallmark of Valley Schools benefit strategy, helps our clients with self-funding plans address chronic conditions before they become costly for their organization and their employees alike.
For more information about our self-funded programs and partnering with Valley Schools, feel free to reach out to speak directly to a member of our team.