Self-funding Q & A

Is the number of employers that are self-funding increasing or decreasing?

The number of self-funded plans has steadily increased over time.

• According to the 2011 Kaiser Family Foundation Employer Health Benefits Survey the number of U.S. companies that partially or completely self-fund their health care plans has increased from 44% in 1999 to 60% in 2011.
• In addition, the Employee Benefit Research Institute (EBRI) reports that in 2011, 58.5 percent of workers with employer-provided health coverage were in self-insured plans. Read more in this SHRM article: More Employees Covered by Self-Insured Health Plans

What kind of employers self-fund?

Self-funding can be a beneficial solution to funding health benefits for employers of
different sizes.

• Employers with 100 employees and even fewer operate successful self-funded health benefit programs. By selecting the appropriate level of stop-loss, or excess-loss insurance, smaller employers can offer a very economical approach to providing employee health benefits. However, it is not right for every employer. Employers must be willing to take on some additional risk and assume some administrative responsibilities.

How do self-funded employers protect themselves from large or catastrophic claims?

Stop-loss insurance limits an employer's exposure for eligible medical expense costs associated during a plan year.

• Specific stop-loss limits an employer's exposure for the eligible medical expense costs of each covered individual during a plan year. Aggregate stop-loss insurance limits exposure for eligible medical expenses for all covered individuals during the entire plan year.

How do employers choose which service providers to work with?

Self-funding offers employers the opportunity to choose a provider network, third-party administrator and other benefit providers on an individual basis.

• Doing so can provide more expertise for a plan that best fits the employer and that will provide them with the most flexible service.

How does self-funding compare to fully-insured options on cost?

Risk transfer costs money. By holding on to some or all of the risk self-funded employers avoid those costs. They also benefit by avoiding insurance company administrative costs
and profit.

• For employers that are working to have a healthier, more productive workforce these efforts translate directly to the bottom line. Self-funding also creates more freedom with plan design and exempts employers from state mandates for coverage.
• With a traditional fully-insured model, employers are typically restricted to using only cost and utilization programs offered by the insurance company. Self-funding allows the employer to choose utilization control programs that best meet their needs. Some options include second-surgical-opinion, care coordination, disease management, and pharmacy benefit programs.

How do self-funded employers budget for expenses?

Instead of having money paid to and held by the insurance company in the form of reserves or pre-paid premium, self-funded employers have more control of cash flow.

• Typically employers that self-fund their health benefit pay for expenses only after they've been incurred.
• In addition, interest earned on reserves, which are established by the employer for the payment of claims, are under the employer's control. Self-funded plans also eliminate the premium tax which can be 2 to 3 percent of the fully-insured premium amount.

What data do self-funded employers have access to?

Unlike an insurance company, which typically considers an employer's claims experience their data, self-funded employers can access a wealth of data for analysis and benchmarking.

• Employers that self-fund are able to spot trends more quickly, drill down to determine causes and determine steps to further improve the plan.
• This data can be provided in relevant, actionable reports by the employer's third-party administrator or network partner.