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More Companies Turning to Self Funding for Health Insurance
Published on Tue, 12/13/2011 - 00:00
More than 59% of U.S. companies are now using self funding as a means to provide health insurance benefits to their employees. As insurer competition decreases and health insurance prices increase, more companies are looking for creative ways to reduce the high cost of health premiums.
Self funding or self insuring allows the employer to control the cost of his or her health care by assuming the risk of providing insurance to their employees. Instead of sending premiums to an insurance company, the employer sets aside premium dollars from employees and the company into a insurance reserve account where employees are reimbursed by the employer for medical costs.
This differs from the traditional fully insured health plan where the employer pays a premium in advance to the insurance company to cover future medical claim costs, insurance company administration, overhead, reserves and of course, profits.
There is obviously a calculated risk to the employer should an employee or employees incur large medical expenses. However, the employer does not assume 100% of the risk for catastrophic claims. The company purchases a 'stop loss policy' to reimburse the employer for claims that exceed a predetermined level.
A common misconception has been that self funding is only for large employers. But the reality is, self funding can be prudently implemented by small employers as well.
Here are some additional benefits of Self Funding:
Lower Administration Costs
Carrier Profit Margin and Risk Charge Eliminated
Mandatory Benefits Optional
Control of Plan Design
National Provider Network
Improved Cash Flow
Claims / Cost reporting