Self-Funded Health Plans - How Companies Take Control of their Health Insurance Costs

Apr 17

"Healthcare is broken" has become a common phrase in our society. And rightfully so. The US is the highest spending country worldwide when it comes to healthcare. We spent $4.3 trillion on healthcare in 2021 accounting for nearly 20% of our GDP. We spend nearly two times more per person on health care than the closest country, Germany.

Furthermore, a peak behind the curtain reveals that an estimated 25% of our overall spending is attributed to waste (failure of care delivery, failure of care coordination, overtreatment, etc.). In the private commercial sector, roughly 10% of overall spending can be attributed to fraud (fraudulent charging, and overcharging). In lieu of this, American citizens pay the price. Healthcare costs average nearly $13,000 per person, and premiums have spiked almost 50% in the last decade with no sign of slowing down.

This "brokenness" at times can feel like an unstoppable force that we have little to no control over.

But what if there was a way to fight the system, gain more control over the cost of care, and drive prices significantly lower?

For businesses in particular, this can be achieved by designing a proper self-funded health plan. In this blog post, we will provide a comprehensive overview of self-funding, its benefits, and how to self-fund a health plan for a business.

What does self-funding mean?

Self-funding is a type of healthcare plan in which the employer takes on the financial risk of providing healthcare benefits to their employees. The employer is responsible for funding the plan and paying for medical claims out of pocket instead of paying fixed premiums to an insurance carrier. Self-funding is also known as self-insurance, and it allows employers to customize their healthcare plans to meet the specific needs of their employees. Employers work with benefits brokers who specialize in self-funding to help contain costs by continuously monitoring the plan to identify trends and key areas of optimization.

What are the benefits of self-funding?

Self-funding has several benefits for both employers and employees. Employers can save money on healthcare costs by paying only for the healthcare services their employees use. They can also have greater control over the healthcare plan, including the design and administration of the plan. Self-funding also allows employers to access claims data, which can help them identify and address healthcare trends and employee health risks. Employees benefit from self-funding because they can have access to customized healthcare benefits that meet their specific needs.

What is self-funding vs fully-funded health plans?

Fully funded health plans are the traditional health plans that employers purchase from insurance carriers. Employers pay a fixed premium to the carrier, and the carrier assumes the financial risk of providing healthcare benefits to employees. In contrast, self-funding shifts the financial risk to the employer. Self-funding allows employers to customize their healthcare plans and save money on healthcare costs.

How do you self-fund a health plan for a business and pitfalls to avoid?

Self-funding requires careful planning and a comprehensive understanding of the healthcare industry. To put it another way: data is king. To self-fund a health plan for a business, employers must understand their employees' healthcare needs and have a clear understanding of their financial obligations. Employers must also have a solid understanding of the regulatory environment and compliance requirements.

Pitfalls to avoid include underfunding the plan, failing to secure proper stop-loss insurance, and not having a comprehensive healthcare management strategy.

Conclusion

Self-funding is an effective way for companies to fight against America's exuberant health care cost trends, and gain more control over their bottom line. A proper self-funded health plan will provide dividends over time in the form of lower health care costs. Lower and more predictable renewals, lower out of pocket costs for employees, and lower premiums. However, it requires careful planning and a comprehensive understanding of the healthcare industry. Proper Benefits has the expertise and experience necessary to help companies looking to optimize their existing self-funded health plan or looking to get started self-funding. We help companies design and implement self-funded plans, manage claims, and ensure compliance with regulatory requirements.

Kasey Weadon