Traditional insurance is not for everyone. Some businesses prefer to have more control over their finances. This can often be achieved through self-insurance. A self-funded or self-insured plan is one in which the employer assumes all of the financial risk involved in providing health care benefits to its employees. This means that the employer pays claims out-of-pocket as they are presented instead of paying premiums to an insurance company.
The Difference Between Fully Insured And Self-Insured Plans
If you are considering making changes to your insurance, it is important to understand the distinct differences between fully insured and self-insured plans. A fully insured plan is a more traditional approach to employer-sponsored health insurance. With a fully insured plan, the company pays a premium to their insurance carrier. These premiums typically have a fixed rate that is primarily based on the number of employees enrolled in the plan. As the insurance carrier receives the premiums, they pay the health care claims of those enrolled according to the terms of the policy. The covered person is responsible for paying any copayments or deductibles.
With a self-insured plan, an employer operates their own health care plan instead of purchasing a plan from an insurance carrier. This can often result in big savings. However, self-insured plans also come with more risks. A self-funded insurance plan contains both fixed costs and variable costs. Fixed costs typically include administrative fees and stop-loss premiums. These expenses are billed monthly by your TPA. Variable costs may include payment of health care claims. The exact costs can vary by month based on the amount of health care used by the covered person. Stop-loss insurance is not always required but is often used by self-insured employers as a way to limit their risk.
When Are Self-Insured Plans A Good Idea?
While not every business should switch to a self-insured plan, this option can be favorable to certain businesses. A self-insured plan can be a good idea if you are looking for ways to save money. Self-funded employers who use TPA services often find that they can save more money on their health plans compared to traditional insurance. TPAs help employers save money by managing an employer’s insurance plan based on business-specific specifications rather than an insurance carrier’s general policy.
Self-insured plans are also a good idea when an employer wants to gain more control over their finances and increase flexibility. Self-funded plans allow employers the chance to work directly with their TPA to personalize their benefits. These benefits can even be adjusted over time as situations change. Improved cash flow is another benefit that business owners can expect when they choose self-insured plans. While traditional health insurance requires business owners to pre-pay for potential claims through monthly premiums, self-funded plans allow employers to only pay for claims once they are actually rendered. This means that you are only paying for services that your employees actually use rather than paying for potential uses.
How Are Self-Insured Plans Administered And Regulated?
It can be concerning to switch to self-insured plans, especially when you are not familiar with how these plans are administered and regulated. Most fully-insured health plans are regulated at a state level while also following federal minimum standards. What makes self-insured health plans different is that they are not subject to any state laws. This means that if your state has imposed certain rules, such as to limit surprise balance billing or to require health plans to include infertility treatments, these requirements do not carry over to self-insured plans.
There are, however, some regulations that apply to self-insured plans. This includes regulations like HIPAA that prohibit employer-sponsored health plans from rejecting an eligible employee based on their medical history. Employers with self-insured plans must also follow rules surrounding COBRA. This means that eligible employees can opt to continue their health coverage if a certain life event would have otherwise resulted in a termination of coverage. The Affordable Care Act (ACA) also published certain provisions that apply to self-insured employers. Some of these include out-of-pocket maximum limits, a requirement that allows dependents to stay on the plan until age 26, and the requirement that grants an external and internal review process to non-grandfathered plans.
Learn More About Self-Insured Plans With BenefitCorp
Today, more than 50 million employees and their dependents receive benefits through self-insured group health insurance plans, according to a report published by the Employee Benefit Research Institute (EBRI). If you want to keep more of your money and achieve greater control over your health insurance plan and finances, then a self-insured plan may be right for you. To learn more about self-insured plans or to see if you are a good candidate for this type of insurance, reach out to the benefits consultants at BenefitCorp.