Is Self-Funding Your Health Plan Right For You?
By Melina Kambitsi Ph.D. | SVP, Business Development & Strategic Marketing at The Alliance
There’s been a lot of buzz about self-funded health plans lately, so we’ve compiled a list of the risks, benefits, and differences between fully insured and self-funded plans.
First, let’s discuss the numbers. Health care costs in the US have increased every year since 1960. And according to Nelson Griswold, an employee benefit advisor, family health insurance premiums nearly tripled from 1999-2018, while wages during that time increased by just 17%.
The good news is that traditional health care is changing. Employer-owned cooperatives, like The Alliance, are introducing the next generation of health care by empowering employers to gain access to their data and provide high-value health care at low-cost providers.
Self-Funding vs. Fully Insured
Fully insured is what most people mean when they talk about health insurance; the employer pays a premium to the insurance carrier on behalf of each employee. In return, the carrier pays medical claims for covered services that are beyond the out-of-pocket maximum for which an individual or family is responsible.
In a fully insured model, it doesn’t matter whether an employee has a medical procedure that costs $20,000 or $80,000, because the insurance company has contracted to pay all claims and assume all financial risk. Under this model, employers pay higher premiums to cover the risks and generate profits for insurance companies.
Self-funded insurance means the employer pays the claims of its employees, so it matters how much individuals pay for care. And because there’s always the possibility of claims being higher than expected, most self-funded plans have a form of insurance in place, called “reinsurance” or “stop-loss insurance.” A third-party administrator (TPA) processes the medical claims and issues benefits on behalf of the employer. But while the employer may assume the risk, they also keep the difference, including interest income.
The Benefits of Self-Funding
Self-funding provides you with full access to claims and pharmaceutical data you can use – because you own it – to guide your plan design and decision-making. The Alliance provides its members with accurate, easy-to-access information comparing cost and quality from providers. This enables employers to be informed when deciding their provider network and benefits plan design.
Depending on the needs of your employee population, self-funding can give employers the option to approach provider contracting differently. By offering tiered options, you can still give employees choice while also directing them to the most cost-effective options. Employers can also consider broader or narrower networks than are typically available through the traditional fully insured model. And having the ability to make the recommended customizations to push employees towards high-quality, low-cost providers helps keep costs in check for the employer and employees.
Want to learn more?
Employers interested in learning more about self-funding can contact the Business Development Team for more information, and to see if self-funding is right for your organization.
Dr. Melina Kambitsi joined The Alliance in 2017 and leads the team responsible for membership growth and retention of the cooperative. Dr. Kambitsi comes to The Alliance from Network Health in Milwaukee and Menasha, Wis. where she was chief sales and strategy officer. In this role, she was responsible for sales and underwriting, strategic planning, product development and risk-based contract analytics. Earlier she was senior vice president of sales at Blue Cross Blue Shield in Honolulu, Hawaii and the vice president of sales, marketing and product development at Blue Cross of Northeastern Pennsylvania.