What is Self Funding?

Self Funded Plans

A self funded healthcare plan, sometimes referred to as a self insured, or partially self funded healthcare plan, is a healthcare plan in which the employer assumes the financial responsibility for providing health care benefits to its employees. The employer is responsible for paying claims as they are incurred instead of paying a fixed premium to an insurance carrier.

What are the Benefits of Self Funding?

  • Control:  You can customize the plan to meet the specific health care needs of your workforce, as opposed to purchasing off the shelf products in the traditional market.
  • Interest Income:  Many companies establish self insurance reserves.  The self funded employer maintains control over the health plan reserves, enabling maximization of interest income - income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
  • Improved Cash Flow:  You do not have to pre-pay for coverage, thereby providing for improved cash flow.
  • Less Regulation:  Self Funded Plans are regulated under federal ERISA law and therefore are not subject to conflicting state health insurance regulations and benefit mandates.
  • Lower Tax:   Self Funded Plans not subject to state health insurance premium taxes, which are generally 2-6 percent of the premium's dollar value.
  • Flexibility:  You are free to contract with the providers, provider networks, Pharmacy and Care Managers best suited to meet the health care needs of your plan and employees.

How is the Plan Protected from Large or Catastrophic Claims?

You elect to fund risk up to a certain level.  Beyond that point, reinsurance or stop loss is typically purchased to reimburse them for claims above a specified dollar level. Stop loss is designed to limit the plan’s loss to a specified amount and to ensure that large or unanticipated claims do not upset the long tern success of the plan. The amount of risk to be insured is a function of the employer’s size, nature of their business, financial experience and tolerance for risk.

For a more in depth look Stop Loss go to:  Basics of Group Medical Stop Loss

Is Self Funding for Everyone?

No.  Since a self-insured employer assumes the risk for paying health care claim costs for its employees, it must have the financial resources to meet its obligations, which can fluctuate. Therefore, employers with poor cash flow may find that self-insurance is not a viable option.

Also, employers with a short term outlook may not be a good fit.  It is statistically probable that self funding will save money over the long term and many employers do save money immediately.  However, results can vary in the short term. Therefore employers should have a 3-5 year commitment.

Is Self Funding Only for Large Employers?

A common but incorrect assumption is that self-funding is only for large employers. Sef-funded health plans can be prudently set up by smaller employers as well. Similar to our work with larger employers, RMA helps the smaller employer select the appropriate level of stop-loss insurance, which provides reimbursement for large catastrophic claims and aggregate claims.

Who Administers the Plan?

A Third Party Administrator (TPA) administers the plan. Their responsibility includes maintaining eligibility, customer service, adjudicating and paying claims, preparing claim reports, plus arranging for managed care services such as network access and case management.