What is Self-Funding?
When traditional health insurance no longer meets an employer’s needs, many companies turn to self-funding as a way to regain control. With self-funding, employers have full control over the plan design, administration, and finances for the health benefits they provide to their employees.
When self-funded, the employer pays for health claims as they occur. The benefits are administered by a third party administrator (TPA) or by an administrative services only (ASO) insurer. The employer can purchase Stop Loss insurance to limit its liability for catastrophic and unexpected claims.
Employers who self-fund take on the financial risk of paying their own claims in exchange for regaining control over their benefits and the opportunity for cost savings.
How self-funded health plans work
With a self-funded plan, employers have full control over plan design, administration, and finances of the benefits they provide to their employees. Self-funding differs from fully insured plans in several ways:
- The employer chooses what benefits it will cover and at what level.
- The employer pays for exact amount of the medical costs each month, rather than paying a fixed premium to an insurer.
- The employer decides what extra services to offer, such as a wellness program, nurse hotline, or maternity program, based on the needs of their employees.
- The employer hires a third party administrator (TPA) to process claims, issue ID cards, determine eligibility, and more.
- The employer owns its own claims data. Employers can see where their health care dollars are going and tailor risk management programs to meet the needs of their group.
Who is a good candidate?
Self-funding is not right for every group. It is not a quick fix, but is part of a company’s long-term risk management strategy. The best candidates for self-funding are companies with:
- Stable workforce with good claims experience
- Strong balance sheet and financial ability to assume some risk
- Leadership committed to controlling costs