Self-insured plans come with many rewards, but you have to be OK with taking quite a few risks to enjoy them. These plans can save companies money in the long run. However, if something goes wrong and someone gets very sick, you might lose the money you saved if you aren’t prepared. Here’s a quick look at how self-funded plans work and how to know when it’s time to move to a fully insured policy.
Defining Self-insured Plans
A self-insured plan, also known as a self-funded plan, is a health plan where the company assumes all the risks, according to Crain’s Cleveland Business. Employers bypass traditional insurance plans and create their own health plan that’s transparent and designed to uniquely match the demographic of their employees. The employer also covers any health claims that employees make. Small businesses utilize self-funded ASO plans, where they hire a third-party administrator to do the administrative work and make sure everything is done correctly.
Understanding Risks and Benefits
There are many risks and benefits to this type of plan. Employers save much more money up front by creating their own plans rather than paying premiums to health insurance companies. And by creating plans that meet the needs of their employees, they may engender company loyalty and attract more talent with a competitive benefits package. The downside is an employer takes on a big risk if an employee has an emergency or an accident and ends up filing far costlier health claims than the employer budgeted for. However, you can mitigate this by buying catastrophic or stop-loss insurance to cover larger claims that would otherwise drain your funds.
Knowing When to Switch
It’s time to start thinking about a more traditional plan if you’re inundated with administrative fees or find copays are lower than industry averages, explained Insperity.
Consider changing if the cost of traditional premiums decrease and you find the savings you’re getting just aren’t worth the risk. Sometimes the costs of stop-loss insurance might dissuade smaller companies from taking on the risk, especially if the cost of premiums decrease. If your company has grown a lot in the recent past and the risk is no longer a big concern because of the money you can put aside, then a self-insured plan might be a good choice.
In recent years, self-insured plans have become quite trendy, with many mid-sized and smaller businesses switching to try them out. But the associated risks don’t always leave employers feeling comfortable in the long run. Take a good, long look at your plan and your company’s resources and talk to a broker about which path is truly the right one for you.
Stephanie Dwilson has extensive experience providing expertise on topics including health, law and marketing. She’s a science journalist published by Fox News, a marketing expert and a non-practicing attorney with experience in personal injury law. She’s also a small business expert featured by Businessweek and has worked as a PR lead for one of the largest churches in America.