Employer Self-Funded Health Programs Offer Savings and Flexibility
The pandemic has compelled companies and individuals to reassess their health and often their health plans. However, businesses must continuously evaluate their health plans to look for ways to reduce costs, reduce inefficiencies, and improve employee wellness.
One way that organizations try to meet these goals is with a self-funded or self-insured health plan.
Self-Funded Plans Explained
Self-funded health plans refer to plans where the employer pays for their employees’ health care claims and manages the health plan. This is in contrast to traditional programs where an insurance company administers the benefit plan and pays for the incurred medical expenses. In the self-funded model, the employer takes on this risk for the cost of employee healthcare. In this approach to healthcare, employers set aside money into a fund and allocate it to pay their employees’ medical costs.
To protect themselves against catastrophic claim costs and limit their liabilities, most self-insured employers obtain a stop-loss insurance plan to reimburse them for claims that top a specific amount.
The Prevalence of Self-Funded Programs
Self-funded plans have been around for decades and are quite common in large companies. Large companies are more apt to adopt these plans as they have the capital to fund and spread the program’s risk across their considerable number of workers and dependents. For example, in 2020, sixty-seven percent of covered workers were in a self-funded plan.
With the current trend of rising costs and shifting health care regulations, smaller companies find self-funding appealing. The Department of Labor’s March 2021 Annual Report on Self-Insured Group Health Plans revealed that of the more than 4,000 new group health plans in 2018, 54 percent were self-insured, which was up 5% from 2017. And 42 percent of participants in new plans were part of self-insured group health plans.
What Drives Organizations to Self-Fund Health Programs
The primary reason organizations move to a self-funded model is to control costs. Expenses for specialties such as musculoskeletal care, sleep disorder, lab testing, specialty drugs, radiology, cardiology, oncology, radiation, and post-acute care drive insurance costs up.
Funding employee health insurance is costly, even when workers pay a share of the premium. After compensation, health insurance is often an employer’s most substantial expense. According to a Kaiser Family Foundation report, in 2019, the average employer paid $7,188 per employee for single coverage and $20,576 per employee for family coverage.
Health care plans are also notoriously hard to navigate. As a result, some organizations transition to a self-funded plan to simplify the health plan process for their staff.
Benefits of the Self-Funded Approach
The savings from a self-funded plan can be significant. For instance, self-funded employers are not required to pay insurers or pay most state taxes on their premiums. Also, self-insurance enables companies to hold on to their money until medical bills are due, rather than paying ongoing premiums ahead of health costs. The Self-Insurance Educational Foundation reports cost savings in non-claims expenses alone can range from 10% to 25%.
Aside from cost savings, which is often the primary driver for self-funding, employees reap additional benefits from this approach. For example, employers have full access to their employees’ health data with a self-funded plan. This data can be beneficial in identifying health trends, including injuries and chronic illnesses, among their workforce, which can be valuable for targeting programs to improve employee wellness, and in turn, better manage benefits and control costs.
Self-funded programs are also less regulated than conventional health plans. The Employee Retirement Income Security Act of 1974 (ERISA) exempts private employers self-funded from most state insurance laws, including reserve requirements, mandated benefits, premium taxes, and many consumer protection regulations. Additionally, self-funded plans do not need to adhere to some Affordable Care Act regulations.
Flexibility for Employee Wellness
Self-funding offers the flexibility to customize a health plan around a company’s unique demographics and needs of its workers. Companies with a younger workforce may offer enhanced coverage for family planning. At the same time, a manufacturer may find that their employees suffer from MSK disorders and implement proactive approaches to prevent and treat injuries, such as onsite clinics.