You may have heard about the benefits of self-funded insurance plans compared to the more traditional, fully-insured plans in the market. Many people believe that only large companies can afford self-funding, but this is no longer the case. As the January 1, 2016, deadline to provide minimum essential coverage to your employees looms closer, it is important to have a full understanding of the options available to you and the best way to provide coverage at an affordable cost.
What Are Self–Funded Insurance Plans?
These insurance plans also go by the name of Administrative Services Only plans or ASOs, according to the U.S. Bureau of Labor Statistics. They are funded solely by the employer, who assumes the liability and risk for health claims made by the participating employee. With this type of plan, you contract with an insurance company to handle the paperwork and administrative duties, both for convenience and to ensure compliance with HIPAA and ADA regulations.
Though you’ll be paying the costs for your employees’ medical claims, can limit your out-of-pocket financial costs in the event of excessive claims or catastrophic events. The primary risk-mitigation technique leveraged for mid-sized employers is Stop-loss insurance. Stop-loss insurance is a policy you take out in which the insurance company agrees to pay any claims over a certain predetermined amount.
Self-Funded Insurance Plans and Fully Insured Plans: Is One a Better Choice for Your Business?
A New York Times article found that the number of employees in self-funded plans increased to 59 percent in 2011, which is up from 41 percent in 1998. As the cost of coverage (in terms of health insurance premiums) continues to increase and efforts are made to reign in health care costs, it may be beneficial to determine if self-funding is the better cost option for your business.
Choosing self-funded insurance plans may prove a more cost-effective way for your business to control costs and meet the needs of your employees while also providing the required minimum essential coverage under the ACA. Depending on your employees’ needs, you may find that one choice presents a clear cost savings.
Donald Parker has more than 20 years of experience in the insurance and financial services industry with several Fortune 500 companies. He holds a life, accident and health insurance license in Virginia. He has been FINRA Series 7, 24, 63 and 65 registered and specializes in the areas of long-term care, senior needs, retirement and employee benefit planning.