Employers are increasingly thinking of self insurance because it turns out it is at a lower cost and has greater flexibility than getting insurance from an insurance firm. This is becoming more popular in this age of increasing healthcare costs and healthcare reform. Because of healthcare reform, there are taxes and other types of restrictions on regular insurance companies that can be avoided in an employer-based insurance.
So what exactly is the difference between a fully insured health plan and a self-funded plan? With a self funded plan, the employer is the one who assumes the financial risk when it comes to paying their employee’s healthcare. The company does this by setting up a trust of contributions by employees and the company. The company can then hire a TPA or third party administrator to manage the claims and other aspects of insurance and healthcare. In fully funded plans, the employer pays a fixed amount to a carrier that then assumes all the risk for the employer.
Why would an employer make the decision to self fund? It is much more flexible than a full service insurance company. A company can include or exclude bariatric surgery, depending on the employees’ needs. In certain states, it is required that bariatric surgery be included for employees.
In self-funded plans, the employer can identify its employees’ needs and can cater the insurance plan depending on what’s prevalent. If many are diabetic or asthmatic, the employers can choose that a hundred percent of these illnesses be covered among its population. This has the potential to keep these patient’s healthier so that fewer end up in the emergency room with complications.
As a self funded company, you won’t have to prepay for your employees’ healthcare and this is better for the cash flow of the company. Self funded insurance is subject only to federal law and isn’t subject to confusing state laws and state health insurance taxes, which can become 2-3 percent of total costs.
Self funded insurance programs affect about 50 million employees, including their dependents, which amounts to 33 percent of the total number of people participating in private health insurance—about 150 million people. Some people believe that being self funded is only really cost effective if your company has at least 1000 employees. Some states offer partially funded programs for employers who have as few as ten employees. Other states have laws that protect a company that has fewer than 50 employees who self insure but fail in their efforts to self insure after one year. After that, you get to have fully funded insurance in the following year.
Companies between 50 and 100 employees who self insure and who fail, however, stand to have very high rates to their fully funded plan in the coming years. This is why these kinds of negotiations are best done with a lawyer.
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