In today’s business climate, employers need benefits solutions as resourceful and cutting-edge as the organizations they run. Companies of all sizes are looking to mold their plans around the requirements of their businesses, and pre-packaged, fully-insured health plans might not be providing the greatest value.
There are many reasons employers might want to forgo a traditional plan system.
- Small and mid-sized employers might want to avoid risk charges and state premium taxes.
- Large employers may want to administer their benefits plans themselves and grow their cash flow by holding reserves in an interest-bearing account.
- Multi-state employers might want to free themselves from the burden of complying with the insurance regulations of multiple states.
- Employers of young, healthy workforces may be looking to capitalize on their advantages by saving on health insurance.
Because each business is unique and requires its own set of insurance solutions, diversity in benefits plans is needed. And for many employers, self-funding could be a better option.
Here’s a quick example from one Raffa Financial client:
Fully-Insured Renewal: $ 887,257
Partial Self-Insured Projected Cost: $ 684,927
Partial Self-Insured Actual Cost: $ 558,056
The worst case scenario would have saved the client over $200,000. In actuality, they ended up saving $329,000!
Now that’s one happy client.
A self-funded group health plan is one in which the employer eliminates obligations to a health plan provider by assuming the financial risk for providing health care benefits directly to its employees.
While experienced, successful business managers are experts at mitigating risks, many will gladly take on risk exposure if the probability is good for a high payout. There are numerous well-documented advantages to self-funding for employers that manage risk well, including:
- Reduced insurance overhead costs. Carriers assess a risk charge for insured policies, but self-insurance removes this charge.
- Reduced state premium taxes. Self-insured programs, unlike insured policies, are not subject to state premium taxes. The premium tax savings is about 2 to 3 percent of the premium dollar value.
- Avoidance of state-mandated benefits. Self-insured plans are exempt from state insurance laws, subject only to ERISA compliance.
- Choosing benefits services à la carte.
- Flexibility in plan designs, administration and offered services.
- Customizable stop-loss insurance to reduce the risk associated with high claims.
- Improved cash flow. Self-insured employers do not have to pre-pay for coverage, and claims are paid as they become due.
- Additional cash flow if reserves are held in an interest-bearing account.
One of the greatest assets offered by self-funding is the complete freedom to structure benefits according to needs of your company. Employers can choose what benefits they want to offer, while opting to insure individual benefits through traditional means or forgo offering them altogether.
The following benefits may be self-insured:
- Health care (indemnity, PPO, POS and HMO)
- Short-term disability
- Prescription drugs
- Vision care
Employers can also make the final call on important variables, such as:
- Policy limits
- Retiree benefits
Most advantageous to employers worried about the potential for large claims is the ability to acquire stopgap insurance, allowing managers to determine their total amount of yearly costs with 100 percent certainty.
At Raffa, we know certainty is hard to come by these days. If you’re looking for ways to find more of it, get in touch. We’ll help you evaluate your current plan designs and map out a plan to keep (or get) you moving in the right direction.
We help clients identify organizational challenges, create big picture strategies, and put customized solutions in place. If you’re looking for a corporate employee benefits consultant who is a true business partner, Raffa is here for you.
Photo by Jenn Huls