The soaring cost of health care coverage is forcing employers to look for alternative solutions. With its many benefits, partially self-funded health care plans are growing in popularity among medium size companies as they combat the rising costs.
Partially self-funded health care plans not only reduce your health care costs but also provide better coverage for your employees and potentially lower out of pocket expense.
Here are the six most significant benefits of partially self-funded health care plans:
Partially self-funded plan's annual cost increase are far less than the industry average of 12-14%, with most plans averaging and increase far below 3%. Since you are not prepaying for the insurance, there is no risk of overpayment, and you only pay for what you use. When you prepay for a fully funded healthcare plan, the insurance company benefits from your better claims experience.
Access to Data
Another key benefit of self-funded health plan is the access to claims data provided to your company. Unlike traditional insurance plans, you have full access to your demographic and claims history. This data transparency allows you to monitor cost drivers and health issues within your company and device a strategy to control or lower these costs.
Exempt from State Regulations
ERISA exempts self-funded health plans from state regulations. The benefits of this exemption are substantial as you are no longer required to pay premium taxes, and are relieved from reserve requirements.
In a traditional health plan, your risk is pooled with a larger group, and you are charged a premium based on the aggregate risk data. A self-funded plan, on the other hand, is solely based on your group’s risk, and you decide what level of coverage is best for your company.
A strategic way to manage your cash flow with a partially self fund insurance plan is to establish a reserve and fully fund it up to your maximum liability on a monthly basis. This provides some protection when you have tight cash flow. Under a self-funded plan, you own the reserve fund, and since you don't pre-pay for the coverage, you can access the funds at any time. Moreover, if your claims are lower than anticipated, you get to keep the excess, not the insurer.
Since self-funded plans are exempt from state rules, you have the ability to customize your benefits based on your group's need, rather than based on state regulations. This means more efficient use of your benefits and potentially lower cost.