How much do you know about self-funding? For many people, the answer is probably “nothing,” but self-funding should be a familiar concept to anyone involved in their company’s decision-making process around health benefits. Unfortunately, this insurance arrangement isn’t well understood by everyone—and that misunderstanding keeps companies from saving money.
Self-funded health plans allow employers to take more control over their healthcare spending without sacrificing employee care. It can be a complex subject, which is why Stop Loss Insurance, Inc. always welcomes your specific questions. In the meantime, try to forget these five common myths around self funding.
It’s Only for Major Corporations
This is one of the most prevalent misconceptions around self funding, that this insurance option is only viable for companies with significant cash flow and hundreds or thousands of employees to insure. It’s true that larger companies are more likely to have self-insured plans, but self-funding has grown in popularity with smaller companies in the last few decades. The Employee Benefit Research Institute reports that in 2018, 13.2 percent of small companies (fewer than 100 employees) and 29 percent of medium-sized companies (100-499 employees) offered at least one self-insured plan. Today, employers with as few as 25 employees can experience the benefits of self funding.
Self-Funded Plans Are Unregulated
Some employers turned to self funding as a result of the Affordable Care Act, in an effort to avoid some of its regulatory requirements. This trend may have given some consumers the idea that self-funding involves no oversight or protection, but this is completely false. Self-funded plans don’t have to comply with conflicting state health insurance laws, but are subject to the Employee Retirement Income Security Act (ERISA). Under ERISA, all participants are guaranteed certain protections that plan administrators are strictly required to comply with.
Self Funding Is a Huge Financial Risk
A traditional health insurance arrangement shields an employer from a certain level of risk. When an employee has a premature baby who needs months of surgeries and intensive care, the insurance carrier can absorb those costs so the employer doesn’t have to. If you’re new to self funding, it’s important to understand that this arrangement doesn’t necessarily require you to absorb those costs, either.
This is where stop loss coverage comes in to limit the employer’s responsibility for high-value claims. An employer that buys stop loss coverage sets dollar limits. The stop loss policy reimburses the employer for any claims that exceed those limits, keeping the employer’s liability within a predictable range. Million-dollar claims don’t have to be paid from the employer’s coffers.
Administration Is a Nightmare
Don’t let the “self” part of self-funding fool you. Self-funding doesn’t mean that a company is on its own to figure out how to create and run its health care plan. A self-insured company typically works with a third-party administrator or insurer, which is responsible for processing claims and handling all the basic plan administration. Self-funding does require the employer to be involved in setting up the plan, because one of the benefits of this arrangement is that it’s customizable to the employer’s specific needs. But once the plan is created, day-to-day management is not the employer’s responsibility.
Self Funding Makes Budgeting Hard
Someone hearing about self-funding for the first time might assume that paying directly for employee health care would cause an employer’s bills to fluctuate dramatically, compared to the predictability of routine insurance premiums. As a self-insured employer, how can you make sure there’s enough money earmarked to cover all the claims that employees incur? Won’t having to guess about future claims make big-picture planning hard to do?
In reality, self-funding affords the employer great ability to predict and control future costs. First, the plan administrator can help the employer estimate costs at the outset. A self-insured employer also has access to its own plan data, which is incredibly useful in making adjustments that minimize costs going forward. And stop loss coverage puts a ceiling on how much of its claims the employer will be responsible for paying.
These are just a few of the myths we’ve seen circulating about self-funding, but there’s plenty of misinformation out there. Bring your questions about self-funding directly to Stop Loss Insurance, Inc. so you can get accurate information about your options. Reach out to Stop Loss Insurance, Inc. at any time.