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8:00pm EDT May 26, 2008

As health care costs continue to rise, one way to create savings to offset the medical increases is through your dental and vision plans. By moving their current dental and vision plans to a self-funded program, employers can save anywhere from 10 to 20 percent in health care costs. Essentially, they are cutting out the overhead and profit that a fully insured carrier must include in their rates.

Smart Business learned more from Michael Pondrom, employee benefit specialist at Westland Insurance Brokers, about what the self-funding option entails.

Why are business owners taking advantage of and implementing self-funded plans?

Employers are fed up with unjustified increases from their traditional fully insured programs that lack reporting data to back them up. By implementing a self-funded program, employers gain control of their plan designs and reporting capabilities and also have the opportunity to lower costs dramatically. These self-funded plans help offset high and rising medical costs and are easy to set up and administer with the help of a broker.

How do self-funded vision and dental plans work 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 the plan designs offered by the fully insured market but at a much lower cost.

A fully insured PPO dental plan can cost between $30 and $40 a month for single coverage. The self-funded dental plan with the same benefit level runs nearly half of that, 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 dollar range.

How does a business owner operate a self-funded health plan?

The employer hires a third-party administrator 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 admin costs to a minimum. Some employers add a dental PPO network to save in additional costs, but the discounts must outweigh the access fee charged by the dental PPO. However, most offer a simple traditional dental plan with no network, offering the flexibility for employees to use any dentist — including dentists in Mexico along the border of San Diego. As a result, the self-funded product is a great solution for the growing number of Americans who access dental services in Mexico.

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

Yes, however, it is not recommended for companies with less than 50 employees.

What are the risks associated with self-funding?

The claim risks associated with self-funding have limits or maximums that the employer can choose, putting a roof or ceiling on their risk. If set up properly by your broker, your plan’s maximum liability, especially on a dental and vision plan, can be quite low, relatively speaking.

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

Yes. As fully insured programs’ premiums continue to increase without reporting to back them up, many employers are choosing to go self-funded. The benefits of self-funding, with regard to control and reporting, really appeal to employers in today’s market. Plus, most employers would rather see any excess profit that would normally go to the fully insured carrier instead go to their bottom line. In other words, when self-funding programs run well, the employer benefits — rather than the insurance company.

It is the classic example of, ‘How can one expect to see different results by doing the same thing?’ Often, when employers shift away from fully insured to a form of self-funding, they wonder why they never tried it before. In most circumstances, the positives of self-funding by far outweigh the risks, and when communicated properly by a broker and understood by the employer, it can dramatically improve the bottom line of a company’s health care costs.

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

No. As long as the program is set up and communicated properly by the broker and employer, the changes can be minimal, if non-existent.

MICHAEL PONDROM is an employee benefit specialist at Westland Insurance Brokers. Reach him at mpondrom@westlandib.com or (949) 553-9700 x3241.