Waking Up to the Opportunity of Self-Funded Employee Health Benefits

The self-funded employee health benefits market is a sleeping giant.

Programs in which companies finance their employees’ healthcare with their own assets are becoming increasingly prevalent, as employers seek ways to reduce ever-escalating expenses, manage risks, increase flexibility of their plans, and tailor plans geared toward what their workers really want and need, all within the confines of the Affordable Care Act (ACA).

With organizations’ healthcare expenses are poised to jump by almost 7% in 2015, according to PricewaterhouseCoopers’ Health Research Institute, self funding can be an alternative to help a company control how much it spends on employee health benefits, while providing workers with quality healthcare.

Almost 95% of US companies with at least 5000 employees currently self fund their health benefit plans. However, the industry that was once mostly thought to be only the domain of large companies, like Walmart, Microsoft, and Starbucks, is now changing. Today, the self-funded market, regulated by the Department of Labor and under the protection of the Employer Retirement Income Security Act, now includes nearly 60% of US employers of all sizes.

The ACA is fueling the proliferation of self funding by adding new costs on fully insured plans and eliminating the risks typically associated with self funding. Many self-funded healthcare plans are exempt from new taxes, fees, and restrictions placed on fully insured medical plans by the ACA. So employers with strong financials and stable work forces are increasingly looking at transitioning to self funding their employee benefits.

Some of the benefits that can be realized by developing a self-funded health benefit plan include:

• Plan design flexibility
• Premium and healthcare cost savings
• Cost transparency
• And importantly, the availability of detailed analytics, which provide information on fees, expenses, and costs not usually able to be provided by fully insured plans

Self-funded plans hold down healthcare costs better than fully insured plans. Once an employer has developed its self-funded program, with careful planning and administration, it can expect to realize, on average, a 5% to 15% savings over participating in a fully insured plan.

We are often asked, “How does an employer interested in self funding the healthcare benefits pursue it as an option?” If a company determines self funding may be appropriate, company leaders should:

1. Engage an insurance broker or health benefits consultant to guide the process;
2. Do a cash flow and risk analysis to determine the monetary resources available and the employer’s risk tolerance;
3. Identify the plan benefits desired;
4. Identify the amount and type of stop loss coverage desired to protect against catastrophic or unpredictable losses;
5. Discuss the types of additional benefits desired: medical/case management, dental, vision, pharmacy benefit manager, flexible spending account, wellness, etc.;
6. Discuss the type of provider network needed;
7. And last, but certainly not least, companies moving to self funding will need to contract with a reputable third-party administrator (TPA). This TPA will work with the employer’s broker/consultant, to bring all the diverse pieces together in a cohesive benefit package and will provide the administrative services, systems and process to implement the self-funded plan.

There are many important players in the self-funded community, including stop loss carriers, networks, medical managers, wellness companies, legal counsel, compliance companies, underwriters, audit firms, healthcare systems, brokers, human resource managers and consultants. Selecting the right TPA is a critical addition to the team and is critical to the success of an employer’s self-funded plan.