Self Funding

Employers who provide group benefits to their employees may choose to provide them through a Traditional fully insured model. They purchase a non-flexible package of benefits at rates pre-established by the insurance carrier.

If a group has a good year – the profits are retained by the carrier, they are not shared with the employer. But conversely, if they had a year that resulted in losses, it often does result in a rate increase to the employer.

Self-Funding offers employers an alternative to traditional insurance and the ability to get credit for their good demographics.

If a group is in traditional insurance and is a good risk/an optimal candidate for self-funding, they have not been getting credit for their good experience. They have been subsidizing their carriers pool of non-optimal risks.

Instead of paying premiums to the insurance carrier, the employer sets up a self-insured Benefit Trust (Plan) specifically designated to pay the Plan’s groups health claims for employees and dependents.

The employer also typically purchases stop loss with set dollar limits and selects a Third-Party Administrator (TPA) to administer the Plan.

What is a Third Party Administrator

A Third Party Administrator (TPA) is “but the humble servant” of the group employee benefit plan. A TPA is the delegated entity that runs the group health employee benefit plan so that the employer can concentrate on running their business.

TPA’s perform all of the administrative functions necessary to operate the employer’s mini insurance company according to the employer’s custom benefit design.

Under the guidance of the Plan Manager, they select the appropriate vendor partners (networks and ancillary providers) and structure the Plan.

A TPA’s overarching goal is to ensure that the Plan operates highly efficiently. A TPA acts as the Plan’s watch dog to make sure that it is compliant with all Federal Laws. In an effort to meet the strategic goals of the Plan, they provide performance dashboard reports to help identify cost drivers and manage costs ongoing.

WHY SHOULD MY ORGANIZATION CONSIDER SELF FUNDING?

Rather than paying an insurance carrier non-refundable premiums, a self-funded plan allows employers to control and manage their claims as costs and expenses. Self-funding offers employers the following advantages:

The freedom and flexibility to customize benefits to meet specific demographics of their work force.

Elimination of most premium taxes.

Potential for savings.

Access to data to make informed decisions.

Lower operational costs.

Ability to keep carrier profits, margins, and reserves resulting in a healthier bottom line.

Money previously paid in premiums to insurance companies can be used to increase company cash flow. Interest on the funds stays with the employer.

Lower administrative costs compared to traditional insurance companies.

Enhanced personalized service to employees and employers.

The option of excluding expensive state-mandated benefits in their plan design as self-funded plans are subject to Federal laws and regulation (ERISA, HIPAA) and not state regulations.

Flexible stop-loss options allow the employer a choice of level of risk they feel comfortable with.

Claims experience only includes your company’s employee base and is not pooled with other employers with more adverse experience. If your plan year is positive, you retain funds not used.

Increased choices in PPO networks, Pharmacy Benefit Managers (PBMs) and other vendor partners.

Statistical information is available to you in both standard or client specific formats. This assists with tracking the performance of your current plan and identify trends or needed modifications so that you can achieve even greater cost savings in the future.

SELF FUNDING