Understanding the advantages of self-funded health insurance plans
What is a Self-Funded plan?
More and more employers are looking to move to self-funded health insurance plans. While fully insured plans certainly have some advantages, self-funding gives more control and flexibility to the employers to create a curated health insurance plan that works better for everyone and can provide cost savings for both employer and employee.
Self-funded health insurance plans are plans in which an employer takes on most or all of the costs of claims from their population. While an insurance company or TPA manages the payment of the claims, it is the employer who has to foot the bill. This upfront risk can seem daunting for employers looking to switch to a self-funded plan from a fully insured plan. As a broker, there are several benefits that you can share with employer groups who are considering making the switch to self-funded and guide them through the process.
Benefits of Self-Funded Health Insurance Plans
- Access to past claims
With a self-funded plan, there’s access to claims’ experience. This leads to a better understanding of the health of the group, overall risk, and how you can use that knowledge to better tailor a health insurance plan based on future years for your clients.
2. Flexibility to create the plan design
Instead of picking an off-the-shelf plan, self-funding offers the flexibility to build a plan from the ground up. You’ll need to help draft plan documents and work with a Third Party Administrator (TPA) to handle the administrative side of the plan, but the build it yourself style of self-funding can help your clients see more savings on their health insurance plans in the long run, as well as provide their employees with a plan tailored to their unique needs.
3. Lower Costs
By creating a plan around the individuals in a population, your clients can extend savings to them. In a self-funded plan, your client’s employees still have access to health networks but potentially at a better cost to your client, meaning they can make their employee health plan more competitive. Plus, employers won’t be subject to bloated, fully insured renewals.
4. Financial Protection
By purchasing stop-loss coverage, your clients can secure financial protection if any claims exceed a certain dollar amount (on an individual and/or the group as a whole).
5. No profit margin
Carriers don’t make a profit off of your premium payments which means the employer can take any leftover money and either extend savings back onto the rates in the plan or increase coverage options for employees.
What’s the difference between Self-Funded and Fully Insured Plans?
Understanding the difference between these two types of plans is important to share with employers who are looking to change their health insurance plans and especially ones who are looking for a better option for the long term.
What You Need for a Self-Funded Plan
There are a few things you need to set up for a self-funded plan:
- Plan documents need to be drafted and then maintained, whether in house or with a TPA (recommended)
- Summary of Benefits Coverage (SBC) and Summary Plan Description (SPD), written in easy to understand language to summarize employee coverage and health benefits.
- Stop Loss Policies, as it’s recommended to have a Stop Loss policy on a self-insured health plan
- Form 5500 and Affordable Care Act (ACA) Reporting and Tax Return documents
A challenging part of switching to a self-funded plan is not having access to prior claims data. This can create concerns on your client’s end that they’re essentially ‘going in blind’ as to how much risk they would take on upfront in case there’s any high claimants that they are insuring. Because of this, many employers can be hesitant to make the switch or aren’t sure how much protection they should have on a Stop-Loss policy in place should there be a costly claim. As a broker, you can come prepared to have these conversations to demonstrate potential value in switching employee groups to self-funded plans.
The lack of any medical history of claims and the sole reliance on Individual Health Questionnaires (IHQ’s) can make it hard for you, as the broker to get a competitive quote for a self-funded plan. So what can you employ to help get competitive rates and create a seamless transition for your clients?
How Verikai Can Help
Employer groups that may be a candidate for self-funding can be submitted through the Verikai Marketplace by their broker. The Verikai Marketplace runs the group census files through our proprietary machine-learning AI models to give risk scores projecting the future claims and profitability of each group – all without the need for prior claims data. Our panel of Carrier and MGU clients will then provide quotes on the groups so that you can secure and bind the policies at a competitive rate – helping you to win more business, faster – and to retain your small-to-mid market clients that don’t deserve egregious fully insured increases year over year.