What Is a Self-Insured Health Plan?

In a self-insured health plan, the employer assumes most of the health coverage costs for benefits that a plan provides. Generally, the employer pays for every claim incurred and does not pay a premium to an insurer. In some self-insured health plans, all claims go through the employer's general assets, whereas others insure against claims by investing in stop-loss insurance.  

Many employers that provide self-insured health plans are large organizations because larger corporations have significant financial resources to ensure the timely payments of claims–an essential requirement in a self-insured health plan.

In this type of plan, also known as a self-funded health plan, the employer takes on the financial risk of offering certain healthcare benefits to their employees.

There are several reasons why a company may opt for a self-insured health plan. Some benefits for companies include:

• The employer has the flexibility to customize the plan according to the specific needs of its workforce.
• The employer does not pre-pay for coverage, thereby improving cash flow.

Generally, companies that provide self-insured health plans:

• Create a special trust fund to pay claims.  
• Partner with a third-party administrator (TPA) to set up a special trust fund to pay claims.

For employers, the method you choose to fund your health plan significantly affects compliance obligations.

With this type of insurance, companies manage healthcare expenses as they receive them. This is unlike conventional health insurance, where an employer pays a fixed premium to an insurance carrier or a fully-insured health plan policy.

How Self-Insured Insurance Works

Employers will usually set up a special trust fund that earmarks money to manage incurred claims if employers elect to offer employees healthcare benefits through a self-insured plan. In addition, TPAs can process claims on their behalf. These TPAs may provide additional services, including contracting for PPO services, collecting premiums, or providing utilization review of claims.  

Most employers that contemplate becoming self-funded employers worry about the occurrence of catastrophic claims. Luckily, employers can protect against unpredicted claims and prevent financial distress. Whereas larger employers have adequate financial reserves for recovering almost any health costs, numerous small businesses do not share that advantage.  

Hence, they choose stop-loss insurance for catastrophic claims. Employers receive reimbursements for all claims beyond a specific amount in a self-funded plan. This is beneficial for employers that intend to shift to self-funded insurance but do not have the funds to cover expensive healthcare costs.

How Is Self-Insurance Different Than Traditional Insurance?

Opting for the right type of health plan is essential for your business’s long-term success and growth. However, employers may be less familiar with the differences between traditional and self-funded insurance.

In the case of  self-insured health plans, a company pays its medical bills directly, and a TPA takes the responsibility of tasks such as issuing ID cards and claims.

On the other hand, if a company opts for fully insured or traditional insurance, it pays premium payments to an insurance carrier.

Typically, this premium depends on the number of enrolled employees and is fixed for the year. Another reason why self-funding is common among large corporations is because of the amount of risk involved. Companies with less than 250 employees hesitate to switch to self-funding insurance because it would expose them to potential financial losses.

Moreover, some companies may not be aware of stop-loss insurance and how it covers unexpected healthcare costs involving employees.

Since healthcare costs are on the rise, more employers are seeking alternative methods for financing healthcare plans. Recently, consumer-driven plans have become more popular because employers shift some accountability to their employees.

Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs) encourage employees to select the best option when considering elective medical procedures. However, self-funded plans take it one step further by offering all claims data to employers, thus enabling them to set up an Exclusive Provider Organization, or an EPO. An EPO is fundamentally a PPO that is hand-picked by the organization to remove the high cost of providers.

Is a Self-Insured Health Plan Right for You?

Various changes in the healthcare industry are transforming the ways employers approach health insurance. A popular trend for some businesses is moving toward a self-funded plan; in some instances, a self-insured plan is more cost-effective and offers many benefits like enhanced flexibility.

If you want to know more about how a self-insured health plan could benefit your business, the next step is to partner with an experienced health insurance broker.

To find an experienced and trustworthy health insurance broker, search Mployer Advisor. You can easily see brokers in your area, browse reviews, and view independent, unbiased ratings.  

Looking for more exclusive content? Check out the Mployer Advisor blog.

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