Self-funding is, by far, the largest funding method for group employee benefits.
It sometimes has different marketing names, such as ASO, partially-self-funded or level funded, but whatever the name, under the law, a plan is either fully insured or self funded. Today, self-funding is not just for large companies. Approximately 70% of all employees are covered by self funded arrangements.
Why the success & market dominance?
It is simply business economics. It usually costs less, because any savings remain with the plan and are not kept by an insurance company. Also the self-funding main regulatory law, ERISA, requires strict reporting, so fees paid for administration (traditionally hidden within an insurance company) are clearly stated and the precise package of services desired is negotiated with a Third Party Administrator (TPA) company. So, to be blunt, instead of leftover money (savings) going to paying for insurance company skyscrapers, with self-funding any unspent money remains as plan assets to help pay future costs.
Custom Designed Plans
Self-funded plans are exempt from State regulation, do not need to be filed with the State Department of Insurance, and are more flexible than a standard off-the-rack plan. Our plans are designed to each employers needs, instead of to the needs of the insurance company. Of course, most federally-mandated benefits & rules, such as COBRA, HIPPA and ACA apply to all plans.
How do I protect myself against catastrophic losses?
Stop-Loss coverage protects the plan against unknown risks. We can predict the usual claim activity for a group but any group could have a large unexpected claim. Stop-Loss coverage is just what it sounds like – a policy to stop the loss if there are large claims. Stop loss is available at various levels to suit a group’s risk tolerance and cash flows. Some employers have strong cash flow and reserves, so they are willing to absorb a higher trigger for Stop-Loss to begin reimbursing the employer for expenses covered by the Stop-Loss policy
Who administers all these details?
Good news: there are dedicated service firms known as Third Party Administrators that take care of all the details. Stirling Benefits has been administering self-funded plans since the early 1970’s. Our experience not only helps save dollars and maximize personalization for the coverage and the Stop-Loss, but we also take care of government compliance.
What impact will health reform have on self-funding compared to insurance?
Health Reform attacked and limited insurance companies in many ways. Charges of insurance company excessive profits and lack of transparency was a primary target under the Affordable Care Act. Self-funded plans have no “profits”. Any unused money or savings remain with the employer to pay future expenses. ERISA regulations and fiduciary duty have always required the most expansive transparency and reporting of any law. So, self-funded plans are comparatively unscathed by health reform, and can thus continue to offer employers and plans the cost-effective much-desired flexibility of plan design.
For these reasons, we’ve seen insurance companies offer “level funded” products. Level funded clients are removed from the insurance company requirement that 80% to 85% of every premium dollar is spent on claims or returned to the group. By moving their best cases to level funding, carriers are able to keep more of the groups health plan expenditures. Some of these companies don’t realize that level funding is actually self funding.
Are you interested in bending the curve on health care costs? Would you like a second opinion on your options? We may be able to save your firm tens or hundreds of thousands of dollars and offer a plan you can be proud of!