- February 22, 2018
- Posted by: JPFarley
- Category: Healthcare Costs, Self-Funding
Are you looking for a way to cut costs while providing adequate health insurance for your company? Here’s how self-funded insurance can help.
Like every other small business owner, you may be desperate to cut costs this year. At the same time, you want to give your valuable employees adequate health insurance. Self-funded insurance may be the answer to your prayers.
Small businesses throughout the United States often think they have no choice but to purchase expensive medical insurance plans from insurance carriers. But the reality is that self-funded insurance may save you a lot of dollars on your insurance premiums.
Not sure if this type of insurance is the right fit for you? Here’s a rundown on how self-funded insurance, also called self-insurance, could help your bottom line in 2018.
Let’s dive in!
Self-Funded Insurance: What is It?
With this type of insurance plan, you collect premiums from your enrolling employees and then use this money to pay your employees’ health care claims as well as their dependents’ claims.
Third-party administrators — or TPAs — are available to help self-insurance employers like you to handle a variety of insurance services, including provider networks, enrollment and claims processing. However, if you choose self-insurance, you’re essentially taking on the risk usually assumed by insurance carriers.
Self-Funded Insurance vs. Fully Insured Health Care Plans
A self-insured plan is quite different from a fully insured plan in a number of ways. Let’s take a quick look at each.
Fully Insured Plan
First, a fully insured plan, also called a traditional plan, involves a monthly premium that you would pay to your insurance carrier according to how many plan enrollees you have.
Your carrier will pay for medical claims, and your employees will pay for their co-payments and deductible amounts for covered health care services.
With a fully insured plan, your premium rate is fixed for an entire year according to your enrollee count each month. In other words, your monthly premium changes only if your enrollee count changes.
A self-funded insurance plan involves fixed costs each month, including administrative fees. You pay your employees’ medical claims, with costs varying each month according to the health care services your enrolled workers use.
In this situation, you’re essentially operating your own medical care plan. Although it is more work, the benefit is that you don’t have to cover the profit margin you’d have to cough up when using an insurance company to do the job for you.
However, you are exposed to a lot more risk if you end up having to pay more claims than you expected. To help with this, some business owners use excess-loss or stop-loss insurance coverage, which reimburses them for claims exceeding their predetermined levels.
Another option for reducing risk and possible costs is to create health care reimbursement plans, also known as HRPs. With these plans, employees reimburse their workers for individual medical insurance premiums that are eligible for reimbursement.
The Affordable Care Act
The concept of self-insurance is nothing new. Mostly unions and large companies — businesses with at least 1,000 employees — have traditionally used it. That’s because self-insurance was deemed too complicated and risky for the majority of U.S. small businesses years ago.
But all of that changed when the Affordable Care Act, or ACA, arrived on the scene. The ACA has what’s called an adjusted community rating-related requirement, which caused traditional insurance plan premiums to skyrocket.
In some cases, businesses’ premiums went up 20%, but in other cases, the increase was more like 200%.
So, what are these small businesses doing in response? Some are turning to self-funded insurance, which may help them to save money.
Self-insurance is cheaper because with this type of insurance, businesses’ rates are based only on their specific groups. Meanwhile, rates are based on several groups in businesses’ local areas when they choose traditional insurance plans under the ACA.
Also, a self-insured plan is exempt from the ACA’s medical insurance premium excise tax. So, that’s like icing on the cake.
If you’re thinking that self-insurance would be a smart choice for your company, do some research first to make sure.
A feasibility study can be done using your business’ risk projections and claims experience. However, if you have under 100 employees, your business might still not be large enough to predict your risk accurately.
In this situation, a major claim may become a huge thorn in your side from a budgetary standpoint.
Still, self-insurance may be a savvy option for cutting your costs if your company’s workers have been healthy historically. The money you save will benefit your bottom line. And as a result, you may feel motivated to pay your employees more and thus help their bottom lines, too.
It’s a win-win for everybody in today’s economy.
What to Expect from a Self-Funded Insurance Company
So, you’ve decided that self-insurance is the right move. Now what? Now you can get in touch with your future TPA to get started.
Your TPA will help you to determine the claim amount your business can fund. Then, the administrator will secure for you stop-loss coverage to reimburse any health care claims that surpass this level.
On the flip side, if your claims end up being lower than you expected, you get to keep the surplus. You can’t beat that.
Once your plan is in place, your TPA will manage its daily operations, including the reporting of information, administration and customer service. You’ll get the information you need to make smart insurance-related decisions going forward. And your workers will enjoy personalized service.
Even a company with only 25 workers can benefit from this type of insurance versus fully insured plans. And what’s great is that as your business changes over time, you can easily redesign your insurance plan when needed.
How We Can Help
We understand that in the world of small businesses, every dollar matters. That’s why as a TPA, we offer self-funded health insurance plans that can give you and your employees much-needed financial flexibility.
You no longer have to pay those high traditional health care premiums and premium taxes. Get in touch with us to find out more about how we can help you to operate more efficiently while still meeting your employees’ health care needs in 2018.