The self-funding shift Featured

8:00pm EDT April 25, 2008

Today, employers are turning every stone to find ways to reduce health care costs that continue to rise. One way to create savings to offset the general medical costs is through dental and vision plans. Moving current dental and vision plans to a self-funded program can save employers anywhere from 10 to 20 percent in health care costs, says Brenda Fagan-Johnson, employee benefit specialist with Westland Insurance Brokers. Essentially, you are cutting out the overhead and profit that a fully insured carrier must include in its rates.

There is very little risk involved with self-funded dental and vision plans, so it is a great way for employers to test the self-funding process and determine the benefits it can provide their business. Dental and vision are the most profitable plans for insurance companies because there is so much money left in reserves at the end of the year, says Fagan-Johnson. Self-funding such plans will save employers much-needed funds.

Smart Business spoke with Fagan-Johnson about the benefits of self-funding dental and vision plans, the risks involved and the operation process.

How is a self-funded health plan administered?

For self-funded plans, an employer hires a third party to process claims and administer the plan. The most cost-effective pricing is generated by putting the dental and vision benefit into one plan. That keeps your administrative costs at a minimum.

What is the difference between a self-funded vision and dental plan compared to a fully insured plan?

The self-funded vision plan is a reimbursement program. You may utilize any licensed eye care provider. A typical vision plan would reimburse an employee $50 for an exam and $100 for glasses or contacts. This level of benefit matches plan designs offered by the fully insured market but at a much lower cost.

A fully insured PPO dental plan costs between $30 and $40 a month for single coverage. The self-funded dental plan with the same benefit level runs between $15 and $20, including the administration fees. Vision programs are approximately $6 to $10 per employee per month. The monthly cost for a self-funded vision plan for single coverage is in the $2 to $3 range.

Why are employers taking advantage of and implementing self-funded plans now?

By moving dental and vision to a self-funded plan, employers automatically save 10 to 20 percent overhead that a typical insurance company would have to charge to make a profit. There is no additional work involved for a busy business owner because a third party funds the claims and handles employee requests. The business owner simply funds the claim.

Self-funding does not limit employees as they are permitted to visit any doctor they wish and receive the same coverage they would if they were covered by a fully insured program. You may use any dentist including dentists in Mexico along the border of San Diego. As a growing number of Americans use dental services in Mexico, it is important to utilize plans that include such coverage. Many dentists in Mexico have been educated and trained in the U.S.; therefore, quality care is not a problem.

Are all business owners qualified to self-fund dental and vision plans?

All are qualified, but it is not beneficial unless you have 50 or more employees. You do not need to have a large pool of money or reserves to self-fund dental and vision plans. Dental and vision are very limited benefits and have a cap of liability per person, per year.

While all self-funded plans are often a benefit for employers, it is a great idea to start with dental and vision plans as they carry less risk and are a great opportunity to become comfortable with the plan.

Do you believe that business owners will start implementing self-funding for basic medical coverage, as well?

It is very common for companies who start out with self-funded dental and vision plans to get very comfortable with the plan and the process and look into self-funded medical plans. They learn how to evaluate the trends of the coverage they are providing and project the needs in the future. They often realize it is very easy to implement and operate. One of the biggest aspects that employers appreciate is they can see where every dollar they spend is going. There are no hidden costs that are often found with insurance companies or operating costs.

Will employees notice a change in their coverage if the plan becomes self-funded?

No, there should not be any difference in the care and coverage received by the employee. Often, we hear employees saying that they like the programs because claims are processed quicker. Typica insurance companies are in no hurry to process claims because they like to keep the funds in their accounts for as long as possible. With self-funded plans, claims are paid weekly. Doctors enjoy self-funded plans, as well.

Employees can still visit any physician they wish with self-funded plans, and employers have the option to design their own plan.

BRENDA FAGAN-JOHNSON is an employee benefit specialist with Westland Insurance Brokers. Reach her at (800) 541-0711 or BFagan@westlandib.com.