Help carry the load

Have you tried to find a health benefit design plan to meet the needs of
each of your employees? By self-funding employee health benefits, you
can have more control over the benefits
offered to employees and not be limited
to a set design. While no benefit design
plan will ever be perfect, self-funding
health benefit plans allow an employer
more flexibility and control while reducing costs.

“Self-funding means the business
owner is actually taking on the risk or
paying the claim,” says Julie Salem, manager of new business sales with Priority
Health. “Many business owners are qualified for self-funding but have not broken down the numbers to see the savings such changes may make for their
business. Self-funding works by involving both employers and employees in the
health care process. By giving employees an active role in their health care
coverage, they are more likely to adopt a
healthier lifestyle and spend wisely on
health care.”

Smart Business spoke with Salem
about determining which employers are
qualified to self-fund health benefit
plans, the benefits of self-funded plans
and how such plans can help reduce
overall health care costs.

Do you have to run an extremely wealthy
business to self-fund employee health benefits?

No, but first you must decide if self-funding is the correct option for your
company. If you believe that fully
insured premiums are higher than the
actual risk, self-funding is an option you
want to explore.

This works well for owners who have
younger employees who are healthy
and/or willing to adopt healthy lifestyles.
As a business owner, you should be
ready to implement wellness programs
for employees to help improve overall
health care.

Depending on which company is used
as the third party or administrator, a
business owner may need to make a financial deposit to self-fund. Other parties may allow you to pay as you go. At
minimum, you will need the equivalent
of a one-month premium on deposit.

How do you determine if self-funding is the
best coverage option for your company?

A comparison should be done between
annual costs of a fully insured plan versus a self-funded plan to determine what
option is the best for the needs of your

First, the annual costs of a fully insured
plan should be determined to see where
those premiums would put health costs
at the end of the year. Then use the same
number of employees to determine the
cost of reinsurance (specific or aggregate stop-loss) and the dollar amount of
aggregate liability plus the fixed costs
(administration of program and the premiums for stop loss). If that total number is equal to or less than the fully
insured plan, self-funding is a good risk.

In addition, owners must determine
the cost of purchasing reinsurance or
stop-loss protection to self-fund health benefits. There are two types of stop-loss coverage. The first is ‘specific,’
which is a per-claim dollar amount that
limits the risk the employer is liable per
claim, much like a deductible. The second is ‘aggregate,’ which limits the overall total risk. This is similar to umbrella

Does self-funding really reduce costs?

If the risk is less than the premium, it
should save money for both employers
and employees and make coverage more
inclusive. As health care costs continue
to rise, more business owners are looking into this option. Employers are getting creative and looking for cost-saving
methods. If they implement and utilize
tools such as wellness programs, this
option can be very effective. Typically,
an employee who exercises regularly
and maintains a healthy diet will have
fewer health care costs than a person living an unhealthy lifestyle.

Some states tax employers on their
fully insured premiums. The state also
mandates the benefits that must be
included in fully insured premium
designs. If a plan is self-funded, the
employer has the option of including
such benefits. This may save employers

What are the biggest risks to self-funding?

The risk is based on actual claim dollars. There is a potential for the utilization to be higher than fully insured premiums. It is important that employers
capture such risks with reinsurance.
This provides owners with the worst-case scenario of what insurance may
cost any given year.

With self-funding, claims change from
month to month. While this may create a
cash flow advantage, it also creates a risk
that high utilization could cause overall
costs to exceed insured premiums.

JULIE SALEM is the manager of new business sales with Priority Health. Reach her at [email protected] or (248) 324-2856.