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Is self-funding an
appropriate choice?


Self-funding vs.
Fully-insured


Claim utilization
reporting


Risk management
   
 



Self-funding may or may not be an appropriate choice for you. Instituting a self-funded plan requires a long-term commitment that can offer many advantages. As with any choice that will affect the long-term goals of your company, it’s important to weigh any potential disadvantages as well.

     


Control of Plan Design
You have total flexibility in plan design.

Reduction of Premium Tax
Fully-insured plans are subject to premium taxes, but in most states, there is no premium tax for the self-funded claim.

Elimination of State Mandated Benefits
Benefit plan is governed by ERISA rather than state.

Cash Flow Benefit
Money formerly held by the insurance carrier in the form of reserves, such as unreported claims and pending claims, is available to you.

Administration Tailored to Your Needs
As a self-funded employer, you assume the responsibility to provide the administrative functions of the plan—utilization review, claims adjudication, claims auditing, and reports. A third-party administrator is usually selected to provide these administrative services.

No Paperwork or Claim Form
Physician/hospital bills the TPA directly without participant submitting a claim form.

Reduced Operating Costs
Administrative costs for a self-funded program are often lower than those being charged by insurance carriers on a fully-insured basis.

Carrier Profit Margin and Risk Charge
Eliminated

The dollars spent are on your health care expenditures, without additional charges from a fully-insured company.

Effective Claims Processing
Detailed paid claims information and analysis for a self-funded employer is provided.

Cost and Utilization Controls
Flexibility to cover as much or as little medical management to suit you company’s needs.

     
Financial Risk

When you decide to self-fund, in essence, you become an insurance company and must be willing and able financially to assume the risk that is normally carried by an insurance company. Adequate cash flow is essential to cover both large claims when they occur and to continue to pay excess claims until the stop-loss carrier reimburses you.

Understanding Health Care Issues
Technology, demographics, government intervention, medical trends, and rising costs can affect health care plans. When a plan is self-funded, it is important to become more familiar than you normally would with these health care issues and learn how to deal effectively with changes in the health care environment.

Communication is Key
When a plan is self-funded, excellent communications with employees on the terms and conditions of the plan, as well as managing their benefits and costs, is very important.

Returning to Fully-Insured
If you elect to go back to fully-insured, your firm will be responsible for run-out claims and the fully-insured premiums for the new fully-insured plan. This can also cause cash-flow problems.