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What is Self-Funding?

What is Self-Funding?

What’s the first thing that comes to mind when you hear “group benefit plan”?

Most people envision a traditional fully-insured plan, in which the employer pays a premium for a preset plan design. Although the insurer assumes all the risk, it comes with a price—premium includes projected claims costs, overhead, commissions, reserves, risk charges and taxes. In addition to the financial drawbacks, flexibility is very limited.

The alternative is a self-funded plan. Simply put, a self-funded plan is one in which the employer assumes direct responsibility for financing health care claims. This tends to lower expenses and improve cash flow since the employer only pays for health care their participants use. A Third Party Administrator, or TPA, is usually contracted for claims payment and customer service.

With a self-funded plan, employers gain greater control over plan design. Self-funding allows employers, in consultation with their broker, the flexibility to choose the right benefits to address the needs of the plan and its participants.

Risk mitigation is a primary concern for self-funded plans. As a line of defense against catastrophic claims, the employer can overlay a stop loss, or reinsurance, policy that meets their risk tolerance. In addition, HealthNow Administrative Services (HNAS) brings plan management tools - from in-depth plan reporting to wellness programs - to analyze and improve participant health. These measures work hand-in-hand to manage costs over the long haul.

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