Traditionally, employers who offer health care benefits to their employees, pay insurance carriers a predetermined premium for fully insured plans. Recently, employers are starting to choose an alternative option to traditional fully insured models, self funding. Through a self funding insurance model, employers pay for employee claims out of pocket, rather than paying in full for a set premium.
Why Choose A Self Funding Model?
On the surface it may appear risky to employers, as employees claims are paid by the employer as they are submitted. However, through self funding, employers continue to partner with carriers who set a maximum amount per employee limit where the carrier will pay for any additional claims that exceed the set maximum amount. This is referred to as the employers individual stop loss (ISL). In addition to ISL, employers are also protected by coverage which is known as Aggregate Stop Loss (ASL). For ASL, a maximum expense limit is set for the entire group in the event the group of employees claims exceeds the limit set.
Essentially employers end up saving money with no risk of overspending, as the fixed limit of ISL and ASL are generally lower than the predetermined premium associated with traditional fully insured plans. This grants employers the ability to customize health care plans based on their needs, rather than paying for an “all-inclusive” traditional health care plan where certain options included in those plans are never utilized.
Self Funding Model Benefits For Employers
In addition to having the freedom of creating custom health care plans based on employee needs, cash flow is improved and standard state health insurance premium taxes are not applicable. Since premiums are not paid in full, the employer retains control over the health plan reserves which in turn, enables the ability to maximize interest income.
Under traditional health insurance models, state health insurance regulations and benefit mandates are often contradictory and are therefore considerably confusing to adhere to. Self funding models are relieved of those contradictions as employers are governed by the Employee Retirement Income Security Act (ERISA).
Employee Retirement Security Act
ERISA was enacted in 1974 which established minimum standards for pension plans and health plans within the private sector. This set minimum guidelines for companies who offer healthcare and pension plans to their employees. ERISA is self-governing, which revokes the ability for insurance companies to govern rules and regulations for self funding insurance models. Through the enactment of ERISA, employers were given increased flexibility and customizable options for their offered health care plans as they no longer had to adhere to insurance guidelines.
Should All Employers Choose Self-Funding Models?
Simply put, no. Since self-funding models require consistent cash flow to pay employees claims, employers who do not have a steady predictable amount of financial resources should consider traditional health insurance models. It is recommended that employers discuss their options with an insurance consultant before making any decisions.
Speak To Our Experienced Insurance Consultants
Regardless of the size of your company or the amount of employees, it is highly recommended that you speak with an experienced insurance consultant before choosing a health insurance model. Our insurance consultants at BenefitCorp work with companies of all sizes and are ready to help you grow your company. Speak to one of our insurance consultants by contacting us online or by phone at 972.737.7875.