How Employers are Using Self-Funded Health Care to Lower Costs

Read any headline and you’ll notice health care is probably the most politically charged topic today. Millions of Americans are worried that their health plan will be eliminated. Or that important benefits will be cut. Or that skyrocketing premiums will render insurance unaffordable.

Despite this turmoil, employer plans remain a pillar of stability for employees and their families. However, many employers using traditional fully-insured health care plans are struggling themselves to keep up with annual rate increases. Lessening the employer’s financial burden is vital to the ongoing quality of a health plan.

More and more, they’re looking at self-funding. How it differs…

With a fully-insured plan, the employer pays a premium for one or more of the insurer’s preset plans. This premium is determined annually and includes projected claims costs—along with overhead for the insurance company, commissions, reserves, various risk charges and taxes. In exchange, the insurance company assumes the risk of providing health benefits and all administration.

With a self-funded plan, the employer assumes direct responsibility for financing 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. HealthNow Administrative Services (HNAS) adds plan management tools—from in-depth plan reporting to wellness programs—to analyze and improve participant health. That’s the key to managing costs over the long haul.

It’s about control and cost.

Although convenient, a fully insured plan design is rigid and often costly. A self-funded strategy can address both these drawbacks. Self-funding allows employers, in consultation with their broker, the flexibility to choose the right benefits to attract and retain top talent. Employers can redesign their benefits at any time to address the changing needs of the plan and its participants.

Overall, costs are lower with a self-funded plan for a variety of reasons.

  • TPA administrative costs are a fraction of insurance premium.
  • Premium taxes are not paid on the claims fund—which accounts for the bulk of total benefit costs.
  • Risk charges are eliminated.

If your client is ready for change, HealthNow Administrative Services has resources to support brokers in this conversation. From self-funding basics to stop loss riders, we can partner with you to bring the right education to the right client.