In the world of employee benefits, deciding to go from a fully insured group health plan to a self-funded group health plan can be game-changing. However, it’s imperative that you grasp the intricacies and implications of this shift before taking the leap.

Understanding the basics

Fully insured group health plans

A fully insured group health plan is a simple way to offer medical and prescription benefits to eligible employees and dependents. Regardless of the plan’s design, it involves paying a fixed premium to an insurance carrier. The insurance carrier is the insurer. It assumes the financial risk of covering the state- mandated benefits.

Self-insured group health plans

A self-insured group health plan is different. Under this type of plan, the plan sponsor directly funds the cost of claims. In other words, the employer assumes the financial risk of covering benefits outlined in the plan.

There are many terms used to describe self-insured plans. These include but are not limited to self-insured, level-funded, self-funded, partially self-funded and captive insurance. It’s important to understand the terminology your consultant uses when deciding whether to move from a fully insuredto a self-insured plan.

For example, level-funded plans occupy a middle ground. They blend aspects of fully insured and self- insured models. With a level-funded plan, you pay a fixed monthly premium to a carrier. The monthly premium covers your Third-Party Administrator (TPA) fee, Reinsurance (Specific Deductible and Aggregate Deductible) premiums, claims funding, and broker fee. If claims exceed expectations, stop-loss reinsurance kicks in to limit your financial exposure.

Advantages of self-insurance

ERISA preemption, regulatory flexibility and customization

Generally, self-insured plans are not subject to state laws regulating or mandating certain benefits. Through the Employee Retirement Income and Security Act (ERISA) preemption, self-insured plansare often exempt from certain state regulations that apply to fully insured plans. Thus, self-insured plans offer flexibility in plan design and coverage options. If you offer a self-insured plan, you can tailor your benefits package to meet the needs of your workforce. This can help you enhance employee satisfaction and retain talent.

Cost control

One of the primary attractions of self-insurance is the potential for cost savings. By directly bearing the cost of claims, you avoid the profit margins built into traditional fully insured premiums and gain more control over health care expenses.

Access to data

With self-insurance comes access to valuable claims data. By analyzing this data, you can identify trends, pinpoint areas of high utilization, and implement targeted interventions to improve health care outcomes and reduce costs.

Risks and challenges

Financial risk

While self-insurance can offer cost savings, it also exposes you to greater financial risk. Unexpectedly high claims can strain finances, making it essential to have adequate stop-loss coverage to mitigate this risk.

Securing appropriate stop-loss coverage can protect you from catastrophic claims that couldjeopardize the financial stability of your plan and your business. Carefully evaluating stop-loss coverage and the policy’s contractual terms is critical. Understand the consequences of early termination, the way claims are handled post-termination, and whether suffcient information isgathered to properly underwrite the plan.

Administrative burden

Managing a self-insured plan increases your administrative responsibilities compared to a fully insured plan. You must oversee your selected vendors, who are responsible for processing claims, maintaining provider networks, meeting compliance obligations and fulfilling other aspects of plan administration.

Conclusion

Transitioning from a fully insured health plan to a self-insured health plan warrants careful consideration. While self-insurance offers opportunities for cost savings, customization and data-driven decision-making, it also entails financial risk, administrative complexity, increased compliance and ongoing oversight.

By understanding the basics, weighing advantages and challenges, and carefully evaluating whether the time to change funding is appropriate, you can make an informed decision. Adequately preparing can help you find a funding method that benefits your bottom line, improves participant well-being and provides benefits your employees will value.

Having a broker that is experienced with the self-funded model can help to alleviate many of the obstacles keeping you from making the transition.  Contact Element Risk Management for a consultation and evaluation of your current Employee Benefits plan and find out if the self-funded model is a fit for you.