Self-funded insurance has been a hot topic for the past few years amongst employers. As companies look to reduce the inflating cost of health care, it has become a tool to take control of their expenses rather than submitting to steadily increasing premiums.
A self-funded plan puts the cost of employee healthcare benefits directly upon the shoulders of the employer. The employer pays out-of-pocket costs rather than paying a more traditional fixed premium. The employer can choose to hedge the risk of a catastrophic year with stop-loss coverage, which places a ceiling on the cost the employer could be subject to.
A key component of self-funded plans is the ability to monitor data at a macro level. This provides for the ability to custom design their health plan to their company demographic. This may include tailoring health plan options, prescription drug plans, and treatment options. These factors must be considered in order to best suit the company’s balance of servicing the needs of employees while keeping employer cost and risk at a manageable level.
Taking on self-funding can have an immediate impact on cash flow when managed properly. Instead of paying premiums up front, companies will pay claims as they are incurred. It should also be taken into account that costs will not be spread evenly throughout the year. The nature of claims can cause spikes, both peaks and valleys, in cash flow demands for health care expense.
Going self-funded has the inherent risk of exceeding the cost that could have been covered with a fixed premium. In order for this to be a winning strategy, a company will need to have the resources to manage and tailor the plan as necessary to their respective needs.
To discuss how you could leverage the advantages of a self-funded insurance plan, or for more questions about how a self-funded insurance plan might work for your business, contact a Barnes Dennig business consultant today