In an employer sponsored 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. That is because big corporations have significant financial resources to ensure timely payments of claims, required 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 his or her employees.
There are numerous reasons why a company may opt for an employer sponsored self-insured health plan, such as:
Generally, companies that provide self-insured health plans:
For employers, the method you choose to fund your health plan has a significant effect on your compliance obligations regarding the plan.
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 policy called a fully insured health plan.
If employers offer their employees healthcare benefits through self-funding, they will usually set up a special trust fund that earmarks money to manage incurred claims. In addition, TPAs can process claims on their behalf. These TPAs may offer additional services, including contracting for PPO services, collecting premiums, or providing utilization review of claims.
Most employers that contemplate becoming a self-funded employer worry about the occurrence of catastrophic claims. Luckily, employers offer protection against unpredicted claims and prevent financial distress. Whereas larger employers have adequate financial reserves on hand for recovering almost any health costs, numerous small businesses do not have a large reserve.
Hence, they choose stop-loss insurance for catastrophic claims. Employers receive reimbursements for all claims that go beyond a specific amount in this type of insurance. This is beneficial for employers who intend to shift to self-funding insurance, but they do not have the funds for covering expensive healthcare costs.
Opting for the right type of health plan is important for the long-term success and growth of your business. However, several employers are unaware of the differences between traditional and self-funded insurance.
In the case of employer sponsored 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 has to pay 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 doing so would expose them to potential financial losses and excessive risk.
Moreover, most of these companies are not aware of stop-loss insurance covering all sorts of catastrophic and 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 (HRA) 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 since they offer all claims data to employers and enable them to set up an exclusive provider organization, or an EPO. An EPO is fundamentally a PPO hand-picked by the organization to get rid of high-cost providers.
Various changes in the healthcare industry are transforming the ways employers approach health insurance. A popular trend for both big and small businesses is moving towards a self-funded plan. Such a plan is cost-effective and offers a multitude of benefits, such as greater flexibility.
However, companies that are not familiar with self-funding insurance must familiarize themselves with the policy's components. Ask all questions about the plan, so you do not have any confusion.
If you want to know more about how a self-insured health plan will benefit your business, get in touch with an experienced and competent health insurance broker.
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