Over the past several years, self-funding has increased in popularity, with the Kaiser Family Foundation 2023 Employer Health Benefits Survey reporting that 65% of covered workers are in self-funded plans. This is, in large part, due to the significant benefits these plans can offer, giving employers more control over their health insurance plans, enhanced data access and transparency, and increased control.
To determine if self-funding is the right choice for your company, it’s important to gain a deeper understanding of what self-funding is and how it works.
Self-funding means employers pay for their employees’ healthcare directly, instead of paying premiums to a traditional insurance company. This gives companies the chance to save money when healthcare claims are lower and better mitigate costs when higher claim periods occur.
With self-funded plans, employers are not on the hook for all medical claims spending because many employers choose to also purchase stop loss insurance. This protects against unforeseen, large claims and protects an organization’s cash flow. Companies can choose the amount of stop loss coverage, or “risk”, that they are willing to assume (keep reading to learn more).
To thrive with a self-funded plan, companies must be actively involved in their benefits decisions and strategy.
A strong candidate for self-funding should:
Partnering with a proven third-party administrator (TPA) or carrier that aligns with the business can help companies determine the best course of action when it comes to self-funding.
TPAs handle the day-to-day management and administration of a self-funded health plan. They do everything that a health insurance carrier does, except take on the financial risk for a company’s health benefits claims like a fully-insured carrier would.
A TPA’s services include:
Think of a TPA as the “health insurance carrier” since they provide the same functions, but without the “insurance” part. They ensure the plan runs smoothly and efficiently by helping employers maximize the benefits of self-funding while minimizing administrative burdens.
Companies may also choose to partner with an administrative services only (ASO) provider. While TPA and ASOs perform similar functions and both manage self-funded healthcare plans, it’s important to understand the distinct differences between the two.
Most importantly, a TPA is typically unaffiliated with an insurance carrier and operates independently, while an ASO provider is either owned by or affiliated with an insurance carrier. This independence allows TPAs to offer more control and flexibility without being bound to insurance carrier rules and restrictions.
Consider this example:
A mid-sized company with a workforce spread across urban and rural areas decides to implement a self-funded solution. If this company works with an ASO provider tied to an insurance carrier, they’re locked into that carrier’s provider network, which may not include local doctors in rural areas. Employees must either switch doctors or pay higher out-of-network costs, leading to frustration and dissatisfaction.
On the other hand, if the company partners with a TPA, they gain access to multiple provider networks. The TPA can help the company choose a network that includes local doctors and hospitals, ensuring their employees have access to care that’s convenient and affordable.
More and more self-funded companies are realizing the benefits of using a TPA, especially as costs continue to increase and employers look beyond status-quo solutions.
Stop loss insurance covers and reimburses claims when self-funded employers experience catastrophic health plan claims. It offers financial protection in the event claims exceed a chosen level of risk.
There are two types of stop loss coverage to consider: specific coverage and aggregate coverage.
Specific stop loss coverage protects against unexpectedly large medical bills for a single person. If an individual’s medical costs go over a set limit (the deductible), this coverage will kick in.
Imagine a small self-funded company with specific stop loss coverage set at $100,000. When an employee is unexpectedly diagnosed with a serious condition resulting in $500,000 in medical expenses, the company only pays the first $100,000; the stop-loss insurance covers the remaining $400,000.
While specific coverage focuses on individual claims, aggregate stop loss coverage looks at the big picture of all claims together. It will kick in if the total claims for all employees go over a set limit for the year. This protects the employer from an outlier year in which an unusually high number of members incur claims.
Once you decide to pursue a self-funded health plan for your organization, the next step is finding a TPA to partner with. The right TPA will align with your organization’s goals, offer transparency, and provide the expertise needed to manage your self-funded plan effectively.
At Healthgram, we have the capabilities and dedicated resources to optimize your healthcare strategy. We keep your business moving forward, with aligned solutions and unique end-to-end operations that simplify healthcare for your workforce.
To learn more about how Healthgram can help you on your self-funding journey, contact us today.
