When it comes to health insurance, choice is a good thing. American employers are spoiled for choice these days, with a variety of insurance arrangements available to even small businesses. But all that choice necessitates making some tough decisions. Before you can get into the nitty-gritty about benefits and co-pays, first you have to make a big decision. Should your company be fully insured and pay premiums to an insurance company, or should you choose self-funded insurance, sidestepping the insurer and paying employees’ claims yourself?
It’s not a decision to make lightly. There’s comfort and familiarity in traditional insurance. Yet more and more small and medium business owners are choosing self-funded insurance each year. Don’t recommit to the old way without understanding why so many businesses are embracing the new.
To Save Money
Cutting healthcare costs is a primary reason that employers choose self-funded insurance. A self-insured employer pays employee claims as they arise, rather than paying a flat premium to an insurer. Choosing self-funded insurance allows the employer to slash a lot of its administrative costs. Instead of contributing to an insurance company’s profits and overhead, or paying for coverage that employees don’t use, the employer’s healthcare dollars are used to pay only for its employees’ real claims. Employers whose employees are largely young and healthy may especially benefit from choosing self-funded insurance.
Choosing self-funded insurance does mean that the employer’s healthcare costs will fluctuate from month to month, and that catastrophic claims from individual plan members can strain its finances. Adding stop loss coverage allows the employer to cap its financial liability. This kind of coverage will kick in when claims exceed a predetermined point.
Also keep in mind that self-funded insurance may generate even greater savings down the road. Once the employer has some claims data to review, cost-efficient adjustments can be made to its plan.
To Improve Cash Flow
Protecting cash flow is critical for a business to operate successfully, so of course it has to be factored into your insurance decisions. Choosing self-funded insurance may improve cash flow in a few ways. For one, not having to pay insurance premiums keeps a lot more cash in the company’s coffers. Plus, when a business first transitions from a traditional insurance arrangement to self-funding, there will be a gap between the end of its premium payments and the start of its claims billings. This gap may temporarily free up more cash for the business to invest.
That said, good cash flow management is an important element of making self-funded insurance work. The employer has to be able to cover its claims promptly. This type of arrangement may not be appropriate for businesses that struggle with poor cash flow.
To Increase Flexibility (and Control)
In a flourishing business, team members are empowered to make the decisions that will move the business forward. They become experts about the company, learning the most effective way to manage employees and anticipating the wishes of business leadership. No one understands the needs and quirks of a company better than the people inside it.
That’s the philosophy that drives some companies to choose self-funded insurance. The general plan that an insurance company creates for your business won’t be a perfect fit for your specific needs. You might pay for benefits that your employees don’t use, and not provide benefits that they do need. Your needs might change year by year, while your insurance plan remains unchanged. Choosing self-funded insurance allows you to control what you cover and make adjustments as necessary.
Improving flexibility and control around your health plan may be beneficial for your bottom line, but it’s also about improving coverage for your team. High-quality health insurance is a critical issue for employees and their families. Providing health insurance that’s designed with your employees in mind is key if you want to keep your best performers, and attract top job candidates in the future.
To Access Claims Data
With traditional insurance arrangements, an employer doesn’t have much insight into how its employees use their coverage. Employers are limited in how much employee health information they can access. With self-funded insurance, however, the employer owns its plan—and its data, too.
Being able to analyze its claims data, with the help of its third party administrator, allows a self-insured employer to make informed changes to its plan. Claims data can be used to identify the habits and trends of the population covered by the plan. From there, the employer and their TPA can identify cost-saving measures that don’t sacrifice quality of care. This data can also be incredibly useful for projecting future costs. To be clear, employee’s medical information is protected and will not be released to the employer. Any information about claims that is shared excludes the patient’s identity. The data employers receive will help plan and develop budgets.
Ultimately, for many companies the choice to pursue self-funded insurance boils down to taking back control from their insurers. Could self-funded insurance help your business do the same? To learn more, contact Stop Loss Insurance today!