There are many things to consider as an organization before you decide if self-funding is right for you. It is important to first understand the basic differences between a self-funded health plan and a traditional health plan and evaluate the advantages and disadvantages associated with self-funding.
Here are five factors to consider before making the leap to a self-insured health plan:
- Understand the volume and nature of your employee health claims.
Self-funding should be viewed as a long-term strategy in which good and bad years average out in the employer’s favor. We recommend taking a look at your employee health claims for the past five years and ask yourself the following questions.
- Is your workforce mostly young or old?
- Were the majority of claims due to chronic illnesses or one-time incidents?
- What was the total dollar amount of claims? This will help you budget for claims in the future.
- Analyze cash flow.
Self-insured plans work best for companies that have a strong cash flow or reserves. It’s important to understand what your cash needs are so you have money available to make timely claim payments.
- Evaluate Stop-Loss Coverage.
Most self-insured employers purchase stop-loss insurance on their self-insured health plans to reduce the risk of large individual claims or high claims for the entire plan. The employer self-insures claims up to the stop-loss attachment point, which is the dollar amount above which claims will be reimbursed by the stop-loss carrier. Obtain stop-loss quotes at several different levels.
- Decide whether it makes sense to administer the plan internally or through a Third-Party Administrator.
If you decide that it is best for your organization to use a TPA, make sure you factor in the costs associated with using a third-party administrator. We recommend obtaining several different quotes before making a decision. Also, make sure that your TPA offers a strong strategy for monitoring the health plan.
- Make coverage goals.
Decide on things such as eligibility, benefit coverage, exclusions, cost-sharing, policy limits and retiree benefits. Weigh the self-insured plan advantages of flexibility and lower average cost versus the increased risk and administrative responsibilities.
Join HAWK Advisers for a seminar on self-funding!
If you’re looking to take a more in-depth exploration to all things self-funding, join us on June 11, 2019 at the Hampton Inn in Downtown Roanoke where David Smith, Vice President of Risk Management & Compliance with EbenConcepts will provide an employer primer on self-insurance and if it’s the right choice for your organization. Register Here!