Many business owners make assumptions about group health insurance—about what is available to them based on the size of their company, or the lack of control they have over costs. Since healthcare costs will only continue to rise, it is important to understand alternatives that can save money. One of the best is self-funding.
There are a lot of misperceptions about this strategy. Read on to learn about five common myths and get the facts related to self-funding.
Myth #1: Self-funding is risky
Fact: A well-designed self-funded plan will not just mitigate risk it will eliminate it
Stop loss insurance takes risk off the table. What most people don’t realize is that stop loss insurance is there in fully-insured plans. You don’t see it, but you are paying for it in premiums. What is stop loss? It is a type of insurance that protects against catastrophic or unpredictable losses.
Another difference: with a self-funded plan you get to set stop-loss limits, instead of the carrier. This gives you more control over costs and risks. Talk to your broker about mechanisms like specific deductible advance, aggregate accommodation, and no laser contracts.
Myth #2: Doctors and networks are limited in self-funded plans
Fact: You can customize your providers with a self-funded plan and the choices are unlimited
Customization of a self-funded plan is a big advantage over fully-insured where you have to pick networks off the shelf. One misperception is that with self-funding, you don’t have access to the big carriers: Cigna, Aetna, Blue Cross and United Healthcare. This is just not true. These carriers offer self-funded plans and they have leased their networks to TPAs so you can get access to all the networks available in the country.
Also with a self-funded plan, if you have a doctor who is not in the network, but they are the company owner’s doctor for example, we put that doctor in network for the owner and pay his claims as if they are in network. This can be done for the entire C-suite.
Customization in self-funding is also a cost-savings tool because you control what benefits you put into the plan. For example, you can put in an attractive urgent care benefit with a low copay that will direct employees away from the emergency room. It’s all about trying to get the person to the appropriate level of care.
Myth #3: Self-funding doesn’t reduce costs significantly.
Fact: In the vast majority of cases, it does
There are numerous ways that costs are controlled in a self-funded plan. Customization is one. Another big one is you don’t pay hidden costs that are in carrier plans: stop-loss insurance, state-levied premium taxes and carrier profits.
Most important: it is easier to access data on health care usage by your employees.
By controlling your claims data you can, with the help of a good advisor, reduce your claims cost significantly. For example, at TAC Benefits Group, we analyze large claims to identify extraordinary costs, and then we advocate for you to reduce those costs to a fair level.
Another strategy for this that is only available in self-funded plans is called reference-based pricing. Essentially, it’s about paying discounted rates on medical services, not ‘list prices’ or arbitrary charges, which can be exorbitant.
Myth #4: Self-funding puts a strain on cash flow
Fact: Actually, the opposite is true
When a business chooses a self-funded plan and they are no longer paying a fully-insured premium, they pay their claims as they go. So throughout the whole plan year, you are going to pay claims as they occur. Under a fully-insured plan, you are prepaying claims, so there are actually cash flow advantages to self-funded.
Myth #5: Self-funding is only for large companies
Fact: Self-funding is a compelling option for employers with as few as 5 people.
Originally, self-funding was designed for larger employers. Old school thinking was that you must have over 500 employees to self-fund. Then stop-loss carriers developed programs to take the risk out of self-funding. Many brokers believed, and still believe, that self-funding is good for companies with say 100 employees. Times have changed as many smaller employers have embraced self-funding including those with as few as 5 employees.
To learn more about self-funding, speak with one of our experts. Contact TAC Benefits Group at kcleary@tacbenefitsgroup.com.
