DIY insurance

Self insurance or self-funding may be the norm for mid-sized to large employers in some other metropolitan markets; however, Cincinnati employers have been slower to make the change to this potentially cost-saving option. According to the SIIA (Self Insurance Institute of America) Web site, “Self insurance has become an increasingly attractive option for many employers due to the rising costs associated with health care.” Locally, the reticence to accept self-funding may be based on a lack of knowledge about the process and misconceptions about risk.

What is self-funding?
Self-funding is simply the funding mechanism for employers to provide health care coverage to their employees and dependants. Health plan claims and administrative costs are funded directly by the employer, versus monthly premiums paid to an insurance carrier. The employer retains the financial risk and rewards of the medical claims up to a level of reinsurance, or for all claims if no reinsurance is present.

Who is involved in a self-funded plan?
The employer is the main party who retains control over plan design and its health care dollars. The third-party administrator will administer the plan and pay claims. Your PPO network is the organization that manages providers and savings levels. Your reinsurance carrier will cover catastrophic and larger claims. Your medical manager, whose service can either be delivered through your TPA or PPO network, works to contain costs by facilitating care through appropriate utilization and wellness programming.

Why is this such an attractive option?
Self-funding enables employers to manage rising health care costs by giving employers the flexibility to design programs that meet their employees’ unique needs. Many employers find that a more local focus provided through a self-funded plan can also make a difference in helping employees access the right care.

Self-funded employers can enjoy the financial benefits of more control over cash flow, greater control over reserves, reduced administrative costs, and avoidance of state mandated benefits and premium taxes. Also, employers can benefit from having access to aggregated data to better understand/analyze heath care performance and cost drivers.

What about the risk?
Employers, if they are very large, may choose to cover all of the risk; however, most employers will retain the financial risk up to a level of reinsurance (stop-loss insurance).

Stop-loss or reinsurance protects the employer against unpredictable or catastrophic loss. There are two types of stop-loss: specific limits cost or claims exposure for any one person covered under the plan, or aggregate limits plan sponsor’s overall claims expenses.

Who should not self-fund?
Employers who may want to avoid self-funding would be employers with fewer than 50 employees; employers who have groups with high or volatile claims experience; employers who are financially unstable, have a declining work force or do not have interest in managing and measuring their medical plan.

Last, if a company is committed to enhancing its bottom line over the long term and improving its cost through proper monitoring and action, it is an ideal candidate for self-funding.

Julie Mueller is president of Custom Design Benefits, a third-party administrator serving brokers and self-funded employers in the TriState area. Reach Mueller through the company’s Web site at