In an effort to control health care expenses, the overwhelming majority of today’s employers self-fund some portion of their health care plans. Self-funding allows an employer to customize their plan to meet specific goals, from maximizing participant satisfaction to accruing significant cost savings.
In the concept of self-funding, an employer assumes direct responsibility for financing their health care plan. Stop-loss coverage is available for protection from exceeding pre-determined individual and aggregate total plan costs.
Usually, a self-funded plan is less expensive than a fully insured plan, where an employer pays a premium to an insurance company to cover potential employee claims costs, insurance company overhead, commissions, reserves, various risk charges and taxes. By taking control of the plan’s assets and retaining them until they are needed to pay claims, self-funding gives an employer the ability to invest prudently while also reducing or eliminating the insurance company retention charges, commission allowances, profit margins and, in most states, premium taxes.
The result is a health care plan that gives control to the employer by allowing complete flexibility in benefit design, fixed costs and risk retention. With health care costs at an all-time high, self-funding is an approach that is worth exploring.