According to the Kaiser Family Foundation’s 2014 Employer Health Benefits Survey, more employers are self-funding their employee benefits, and that number has been on the rise. According to Kaiser, 15 percent of covered employees at small companies with 3-199 employees, and 81 percent of covered employees at larger firms, are enrolled in plans which are either partially or completely self-funded. The percent of covered employees enrolled in self-funded plans has increased for large firms since 2004. Both mid- and large-sized employers are learning the advantages inherent in self-funding employee benefits.
As you plan for the coming benefit year, consider the following advantages of self-funding, and whether or not it may be a financial strategy that can help your organization meet its corporate goals:
- Cost-Containment. Third party administrators (TPA) that manage self-funded plans have the capability to go beyond strict network discount arrangements on every claim payment to find additional cost savings. With internal claim reviews, fraud and abuse protections, custom claim negotiations, and case management solutions, each claim can be reduced before it is paid to ensure the employer is paying the least amount required.
- Greater flexibility. While insurance carriers sell pre-designed, fully insured health and dental plans with restricted benefits and strict plan limitations, under a self-funded arrangement, a TPA can customize a plan design to the exact specifications of the employer at the benefit/cost-share level. This opportunity poses a significant advantage to collectively bargained plans and allows employers to strategically manage the cost of their plan.
- Actionable data. Fully insured plans receive minimal experience data from their carriers, which limits an employer’s ability to understand what factors are impacting costs. Strategic TPAs can offer their self-funded plans fully-customized data, data analytic tools, and predictive modeling solutions, that can be used to help guide plan design strategy in an effort to mitigate cost-drivers.
- Lower Administrative costs. With a self-funded plan, employers avoid the costs of claim reserves, steep insurance carrier profit margins, risk charges, premium taxes, and contingency margins. They also avoid the Affordable Care Act’s Health Insurance Tax, which is expected to incur $145 billion in revenue.
- Enhanced cash flow. Unlike fully-insured plans that require advanced premium payment, under a self-funded plan, claims can be funded as they are due, which allows employers to keep more money in a bank account where it can earn interest.
- Strategic Service. TPA client service staff members are highly trained in the intricacies of self-funding. They are benefits experts who work to collaborate with employers and their brokers or consultants to properly manage the plan to optimal efficiency. This engagement and service involvement provides self-funded employers with a trusted partner to assist with escalated member inquiries, plan experience review discussions, compliance resources, and strategic expertise.
For more information on why so many employers are transitioning to self-funding, review the infographic below.
