**This article, written by Alliance president & CEO Cheryl DeMars, was originally published in the July 2016 issue of Wisconsin Business Voice and reprinted with permission from Wisconsin Manufacturers & Commerce**
Self-funding can change your approach to employer health benefits by giving you more savings, more control and more information about your health benefits.
So how do you know whether self-funding is right for you? Answering these 10 questions can help you decide.
- What does your data say? Historical claims data is important to know whether self-funding will benefit your company, yet employers often have difficulty accessing in-depth data unless they’re self-funded. A broker with self-funding expertise can help you gather and analyze your data to learn whether self-funding has the potential to pay off for you. Data can also help you design cost-effective benefits that improve workers’ health to capture greater productivity.
- Are you big enough to self-fund? A growing number of employers with less than 100 employees are self-funding. The bigger the employer, the more likely it is that they’ll self-fund. See chart below:
- Are you ready for a bigger administrative role? Self-funded employers play a hands-on role and partner with a third-party administrator (TPA) to handle claims processing and other tasks. Self-funded employers also have additional legal and fiduciary responsibilities related to proving they have the financial stability to sustain self-funded health benefits.
- Are you willing to assume some risk? Self-funding rewards employers with savings partly drawn from profits that would otherwise go to the insurer. Savings can be as high as 12 percent annually, according to an article published in the March 9, 2015 issue of BenefitsPRO magazine. Yet there’s also the risk that your health plan costs will be higher than expected. Stop-Joss insurance helps mitigate this risk. If your claims history typically shows a worse-than-average experience, self-funding may not be right for you.
- Can you find the right adviser? A great broker or consultant can be invaluable in designing a cost-effective benefit plan that achieves your goals while minimizing financial risk. A thorough request-for-proposal (RFP) process can help you find an experienced self-funding adviser who is the right fit for your organization.
- Are you preparing for the Cadillac tax? Self-funding’s flexibility can help you design a consumer-directed health plan (CDHP) that meets employee needs while avoiding the 40 percent excise tax, also known as the Cadillac tax. This tax requires employers to pay 40 percent of the value of employer-sponsored health coverage that exceeds certain benefit thresholds when it takes effect in 2020. It’s also worth noting that self-funded plans do not pay the health insurance tax (HIT) the ACA imposes on fully-insured plans, which is likely to be passed along to fully-insured customers.
- Do you prefer a holistic approach to employee health? Companies focused on employee wellness are a good match for self-funding. They reap the benefits of their investments in employee health in terms of reduced health care costs and increased productivity, both of which benefit the bottom line.
- Do you want to encourage “consumerism?” “Consumerism” means involving people in decisions about their care, such as choosing doctors and hospitals based on cost and quality. Self-funding can help make health care “transparent” by providing the data needed for these comparisons. Promoting health care consumerism is one way to help employees transition to high-deductible health plans (HDHPs).
- Are you looking for better ways to buy health care? Self-funding can help you pay doctors, hospitals and clinics on the basis of performance. For example, self-funded employers who use The Alliance’s QualityPath program guide employees to high-quality doctors and hospitals that provide selected surgeries for a lower, bundled price that includes a warranty.
- Do you want more control and more flexibility in plan design? Every self-funded plan is a little different because every company is different. If you want a plan that recognizes the unique demands of your business and your workforce, self-funding may be a good fit.