What Is Self-Funding? Exploring Key Benefits and Details
Self-funding has emerged as an attractive alternative to the traditional fully-insured group health plans where employers and their members pay fixed premiums for coverage. So, what exactly is self-funding, and why are an increasing number of businesses of all sizes opting for this approach? Let’s outline the concept and explore its key benefits.
Self-funding, also known as self-insurance, is where employers directly assume the financial risk for providing healthcare benefits to their employees. Instead of paying fixed premiums to a massive insurance carrier like Anthem or United, self-funded employers fund the cost of their employees’ medical claims themselves, either independently or through a third-party administrator (TPA). Self-funding gives employers greater control over plan design, costs, and decision-making processes.
A key advantage of self-funding is the cost savings. By eliminating various commissions and administrative fees associated with fully insured plans, self-funded employers have the ability to potentially reduce their overall healthcare expenses while receiving additional money back that they would not have with a fully insured plan. With a self-funded plan, employers also have more flexibility in designing benefit packages tailored to their employees’ needs.
Another key benefit is the increased transparency and access to data. Unlike fully insured plans, which often provide limited insights into claims data and utilization patterns, self-funded employers have real-time access to detailed analytics. This enables them to identify major cost drivers, track healthcare spending, and implement targeted strategies for lowering costs and reducing risk.
Self-funding also offers greater regulatory flexibility and control. Self-funded employers are subject to federal regulations under the Employee Retirement Income Security Act (ERISA). This means they have more freedom in structuring their plans without being bound by state-specific mandates, which can vary significantly from one jurisdiction to another.
Unlike fully-insured plans, where premiums are based on community rating or experience rating, self-funded employers directly benefit from any surplus funds generated by their plans. This can result in substantial savings over time, especially for organizations with healthy and low-risk populations.
While the self-funding benefits are numerous, this strategy doesn’t come without its risks. There is the potential to realize big savings on healthcare costs, but there is also the possibility of a few exorbitant claims bankrupting a business. With a comprehensive stop-loss policy in place, that risk can be managed effectively, but you need the right partner.
Self-funding is a growing solution for employers seeking greater control, flexibility, and cost savings in their group health plans. As healthcare costs continue to rise, self-funding presents a viable alternative for businesses looking to navigate the complexities of the modern healthcare landscape while maximizing value and efficiency. If you’re looking for a stop-loss partner to help you realize your self-funding dreams, contact us today.
I think you can drive home the point of getting the money back, unlike with fully-insured premiums – and the employer can choose what to do with that
I think you need to address the risk element – because a big reason employers don’t go this route is because they are wary of taking on the risk. But then you can fold in stop loss as a key part of self-funding and a way to protect against that risk. Then lead gently into XS RE and close it out.