The Society for Human Resource Management (SHRM), states that employers who self-insure health plans are directly responsible for paying medical claims rather than paying for conventional health insurance policies. A self-insured employer chooses its plan design and usually hires a third-party administrator to manage the plan. Employers that cannot afford or do not want to be responsible for catastrophic claims purchase stop-loss insurance that covers claims after they reach a certain level.
Self-funding health insurance is not the best option for every employer. To begin evaluating the self-insurance option, it’s important to take a hard look at costs. This means comparing the costs associated with a self-insured plan to a fully-insured plan.
When it comes to a fully-insured plan, the costs are straightforward. However, when it comes to projecting the costs associated with a self-insured plan, it is not so simple.
It’s important to factor in the projected claims minus any investment returns on reserve funds, the cost of any vendors hired to manage the plan (this would include third-party-administrators), and the cost of any stop-loss insurance the company plans to purchase.
Some other factors to consider include:
- Financial Risk – employers will become responsible for medical and pharmacy claims
- Claims can come in above what is expected
- Evolving health care – new drugs and high-cost treatments are increasingly common
- Under a self-insurance plan, you are responsible for carrying out all of the services that are typically done by the insurance company under a fully-insured plan (most companies hire a TPA to handle these responsibilities)
- Stop-loss policies are issued without guaranteed renewal – an unexpected jump in health care claims can lead to much higher premiums or a cancellation of the policy
- These plans require a three to five-year implementation period before you start reaping any rewards
Like with most things, there are advantages and disadvantages to self-funded health plans. To learn more about the advantages associated with self-funded health plans, see our blog post here.
Interested in learning more about Self-Funding?
Join HAWK Advisers on June 11, 2019 at the Hampton Inn in Downtown Roanoke where David Smith, Vice President of Risk Management & Compliance with EbenConcepts will take an in-depth exploration to self-insurance.