Since the passing of the Affordable Care Act back in 2010, self-funded health care plans have been increasing in popularity with small businesses. The requirements of the ACA led businesses to assess how they were funding their employee insurance and benefits plans. Ever-changing regulations are difficult to keep up with, and a self-funded healthcare plan helps make that easier. Self-funding also increases plan options and keep up with costs.
Up until the passing of the ACA, self-funded plans were almost exclusively used by large corporations who had the resources and bandwidth to deal with the uncertainty of changes in cash flow. The benefits of savings is the upside, but insuring oneself can be risky, especially if an employer isn’t entirely sure what they’re doing. Now, the upside of self-funding is more than just savings, it’s increased options that benefit both employers and employees. This is one of the main reasons why self-funding for small businesses continues to rise.
Increased Risk But Increased Reward
Unlike medial plans with traditional insurance companies, the self-funded employer takes on the risks associated with varying costs. Depending on the costs and amount of claims employees submit, those costs fluctuate. The good part about self-funding is savings in the long run. Most employers have some form of premium sharing plan by which employees contribute part of their wages to enroll in. And if the premiums add up to more than what is paid out for claims, then the employer pockets those funds. However, if the claims are more than that of premium contributions, then the employer must absorb that loss. This is where the benefits of stop-loss insurance come in.
Added Layer of Protection
In order to minimize the risk of financial loss due to high claim costs, stop-loss insurance helps keep catastrophic claims in check. Additionally, stop loss underwriters and brokers can help predict what claims and insurance costs will be over the course of a few years. The requirement for this is looking at benefits over the course of a few years and that the company always keeps their finances in check. We always recommend that self-funded employers budget for max liability, and this is something at a good underwriter should be able to help you with. The only time a traditional healthcare plan would fluctuate is if employees are added or removed from the plan. If claim costs exceed premium costs, the insurance company keeps that difference. With self-insurance, the employer assumes that risks but also get to keep the excess cash themselves. You can choose either specific stop-loss insurance or aggregate stop loss to help minimize risks and increase the protection for your business. If you’re not sure which type of stop loss is right for your business, be sure to talk it over with your underwriter.
Self-Funding Increases Options
In addition to cost savings, employers with self-funded healthcare plans have more options and control over their plans. With fully insured traditional plans, options and plan flexibility are lacking, due to the fact that insurance companies are subject to regulatory bodies and corporate rules. This is not the case with self-funding, as employers can select networks based on their location, and pick a specific pharmacy benefit manager, just to name a few. Other benefits to self-funding include individual employee case management and reserve building. Self-funding also helps to alleviate the headaches that can come about through compliance issues, mandates, and fees as per the ACA. One of such mandates was “community rating” rules, which stated that insurance costs would not be based on health factors for employers with fewer than 50 employees on their plan. Self-funding eliminates these compliance concerns.
Get Employees Involved
Once you’ve made the decision to move to a self-funded healthcare plan, inform your employees and get them involved. Be sure to present the decision to move to self-funded plan as one that will benefit the entire company and not just the financial interest for you as the employer. Talk with them about the increased flexibility and potential wellness programs if you decide to start one. It’s highly recommended that you do start a wellness program because this will help paint a more clear picture of the overall health of your employees, which in turn will help you to forecast costs.
If you’re ready to make the transition to self-funding healthcare, you more than likely have questions that you need to be answered. At Prodigy, we take pride in removing the confusing insurance jargon and offering straightforward stop loss advice and underwriting with the main goal of benefiting your business. Give us a call today to get started.