Self-funded health plans are a health insurance alternative for companies that want more control over how much they pay for healthcare benefits. Although business leaders sometimes assume that self-funding is only for Fortune 500 companies, it’s actually a viable option for companies of all sizes. It’s an option that saves money without sacrificing health benefits.
If that sounds like an oxymoron to you, you aren’t alone. There is no shortage of business owners who can’t seem to wrap their brains around self-funding because they don’t know how it’s possible to save money without cutting benefits. But it is possible. Not only that, but it is also easy enough to understand with a good explanation. You are about to get that explanation.
Exempt From Most Regulations
Our explanation begins with the fact that self-funded health plans are not insurance. As such, they are exempt from most federal and state insurance regulations. Despite self-funded plans being fully ACA and ERISA compliant, they are not subject to the same regulations under which group health insurance programs are governed. That saves money.
Not having to comply with insurance regulations means spending less money on administration. Still, most self-funding employers turn to third-party administrators like Nevada’s StarMed to manage their employer-sponsored plans. They pay less for third-party administration than they would to maintain compliance under a traditional insurance plan.
Exempt From State Insurance Taxes
Group health insurance policies are subject to state taxes. In other words, states assess taxes on insurance premiums. Those taxes are baked into the premiums themselves, so employers and consumers pay them without even knowing it. Taxes obviously add to the total cost of an employee’s health benefits.
Guess what? The fact that self-funded health plans are not insurance means they are not subject to premium taxes. Take taxes out of the equation and costs immediately drop. In many cases, they drop substantially. The fact is that state governments contribute to higher health insurance premiums through taxation.
Employee Benefit Customization
Next up is the practice of customizing employee benefits. Self-funded plans do have to offer minimum essential coverage (MEC) as defined under the Affordable Care Act (ACA). But above and beyond MEC, self-funded plans can be customized to cover only what employees need and want. Plans can also be modified to help control costs based on historical data.
For example, let’s say an employer notices its self-funded plan has experienced a spike in urgent care and ER services. Implementing a direct primary care program aimed at preventative healthcare could reduce subscriber use of after-hours and urgent care services. The end result would be long-term savings.
Private Negotiations With Providers
Yet another way self-funding saves money without sacrificing benefits is offering employers the opportunity to privately negotiate with local healthcare providers. Employers and providers can negotiate everything from rates and fees to how services are delivered.
A good example to illustrate this is a plan offering virtual primary care. Under the plan, a local primary care office agrees to offer unlimited telehealth visits along with a limited number of in-office visits per calendar year. The employer saves money through less expensive telehealth services while still providing more-than-adequate primary care for employees.
Self-funding is not a silver bullet for slaying the insurance beast. But it is a lower cost alternative to traditional group health insurance. A well-conceived plan saves money without sacrificing employee benefits. In fact, that’s the whole point of self-funding to begin with.
If your company is looking for a less expensive option to traditional health insurance, consider self-funding. It really does work for companies of all sizes.