Self-Funded Healthcare Insurance

With rising costs of healthcare, many employers are turning to alternatives such as self-funding in order to help finance their healthcare options.

A self-funded, or self-insured plan, is an arrangement in which the employer provides health insurance to his/her employees using the company's own funds. This is a little riskier for employers because unlike a fully-insured plan, where an employer works through an insurance company to cover employees and dependents, with self-funded healthcare, the employer assumes all financial risk for payment of benefit claims.

Another way to mitigate financial risk from self-funding claims is through stop-loss insurance, which provides coverage in the event of any high claim on an individual. This type of insurance is also known as individual stop-loss because rather than protecting against an abnormal frequency in total claims, it protects against an unusually high claim for an individual person.

Self-Funded Healthcare Insurance FAQs

This type of plan offers both financial and operational advantages. If you have employees in multiple states, then you may have dealt with the frustration of differing state mandates. A self-funded plan is regulated under federal law (ERISA), and therefore not subject to the potentially conflicting regulations/mandates of individual states.Self-funding also gives you much more flexibility in customization of your package to meet the specific needs of your employees rather than a "one-size-fits-all" policy. You would have the ability to select the providers or provider network that you feel best suits the needs of your workforce. Being federally regulated, self-funded plans allow you to avoid the generally 2-3% state health insurance premium taxes. Self-funding also eliminates the need for pre-payment for coverage.You would control the health plan reserves, maximizing interest income that would otherwise go to the carrier via premium dollars.

Many employers use a third-party administrator, or TPA, who processes and adjudicates claims for the employee benefit plan. They may also provide services such as premium collection, claims review, contracting for PPO services, and other relevant functions. You may opt to handle all of these processes in-house or subcontract these services to a TPA.