diverse group of people discussing self-funding at work

Now that open enrollment is over for most employers, many are feeling the pinch of high health plan renewal rates, excessive expenses, and more. One good way employers can contain costs is by changing their funding strategy from fully to self-funded. In fact, according to Statista, 65% of all workers are covered by a self-funded plan.

In this blog post, we’re going to talk about:

  • The definition of self-funding
  • How self-funding controls rising costs
  • Who should consider self-funding

While there are different health plan funding options available to employers, we’re going to focus on the benefits of self-funding.

What is self-funding?

Also known as self-insured, self-funded means that an employer essentially manages its health plan. It assumes all financial risk and responsibility for running the plan.

An employer pays for healthcare claims as they happen rather than paying an insurance carrier a fixed premium. Typically, they’ll set up a fund from which claims are paid and work with a third-party administrator (TPA) to process claims and provide administrative services.

How does self-funding control healthcare costs?

Self-funding offers employers more flexibility than fully-funded plans. Benefit plan design is more flexible, making it more possible to achieve business goals while meeting the needs of employees.  Here are some ways that flexibility translates into cost savings:

  • Employers don’t pay annual or monthly premiums. Instead, they pay health claims as they come in. This produces an opportunity to see cost savings almost immediately.
  • Employers enjoy tax advantages by being self-funded. While fully-insured plans are subject to a state premium tax, self-funded plans are not.
  • If health plan reserves are held in an interest-bearing account, employers enjoy the additional cash flow.
  • A deeper analysis of claims can be done so employers experience fewer surprises and more accurate control over how dollars are spent. Employers know exactly what they’re spending and for what.
  • Self-funded employers traditionally experience lower health plan administration costs and overhead.

Who should consider self-funding?

The ideal employer for self-funding typically has more than 25 employees. It should be financially stable and able to pay claims as they occur. Additionally, it should be willing to do a little more work, including understanding costs, claims processes, etc.

While TPAs will handle administration, the employer takes on all risks for the plan. However, stop-loss insurance is available to employers who want to reduce their risk and get protection from catastrophic claims. Additionally, by implementing care advocacy services, risk is lowered because employees are steered towards high-quality, lower-cost providers.

Nearly all employers who move from fully to self-funded do so because they want to reduce expenses. They’re looking for high quality and more control over costs. They’re also able to offer employees the flexibility they want and need.

The SentryHealth difference.

SentryHealth is leading the charge in employee health and wellbeing. Integrating smart technology with personalized guidance from Registered Nurse Advocates, we empower employees to make more informed decisions while guiding them to quality, affordable care. The result is greater engagement, higher satisfaction, better outcomes, and lower costs.