“Wait, what’s a self-funded plan again? And why does it make sense for my clients?”
These are questions I hear from brokers all the time. And I get it. Self-funding can be complex. But it’s time to get smarter about self-funded health benefit plan designs as this type of product could be a game-changer for your smaller clients.
Let’s start with the basics. What is a self-funded plan? Self-funding is an arrangement where an employer sponsors a self-funded health benefit plan and is financially responsible for employee covered claims up to a certain dollar amount. Covered claims in excess of this dollar amount are reimbursed to the employer through stop-loss insurance.
Larger organizations have used self-funding for years as a way to save costs, but more recently we’re also seeing smaller businesses offering self-funded health benefit plans to their employees.
The numbers back it up. Between 2013 and 2016, the percentage of small employers offering at least one self-funded health benefit plan increased from 13.3 percent to 17.4 percent—a 31 percent increase.
Why are more small businesses offering self-funded health benefit plans? I see three big reasons:
1: Self-funding can be a great tool to attract and retain employees.
When it comes to health care, employees want choice and affordable options. Self-funded health benefit plans can give your employees both. From comprehensive medical to preventive-only coverage, your employees will have a variety of options. And, they’ll have those choices at affordable prices. That can be a key tool to attracting and retaining employees in an increasingly tight labor market.
2: Self-funding provides flexibility.
Employers can customize their self-funded health benefit plans with different deductibles and coinsurance choices to fit their needs, whether it’s a preferred provider organization (PPO) plan design, consumer-directed health plan (CDHP) design, or a reference-based pricing or preventive-only plan design.
3: Self-funding can help lower employer costs.
There are a variety of ways self-funded health benefit plans can help employers lower costs. First, employers can receive refunds if there is a surplus of claim dollars in their prefund account at the end of the plan year. Second, claim dollars are not subject to state health insurance premium taxes, which can help lower costs (premium taxes average around 2 percent). And finally, self-funded health benefit plans give employers access to aggregate health claims data and demographic information. This data — available exclusively under a self-funded arrangement versus traditional health insurance — allows employers to better manage costs and encourage cost-savings measures their employees can practice, such as switching to generic medications, using in-network providers, and selecting a different level of care.
In the end, better understanding the ins and outs of self-funding will mean more choices for your small employer clients—and more success for you.
With some research and education on how self-funding works and the carriers/TPAs that offer administrative services, self-funded health benefit plan designs and stop-loss insurance, you can become well-versed in what’s available in the marketplace and learn if and when a self-funded health benefit plan design could be a potential fit for your smaller clients. Having a solid knowledge is a good start to have the advantage over another broker who didn’t evaluate self-funding as a viable option.
Darick Bradford is a sales consultant in Charlotte, N.C. for Starmark (Star Marketing & Administration, Inc.) and Trustmark Life Insurance Company. With more than 26 years of combined group health benefit plan experience, including both the fully insured, Medicare and self-funded sectors, Darick currently works with brokers with their sales of self-funded plan designs in the southeastern United States. Darick is a member of the National Association of Health Underwriters (NAHU) and local chapters including, GAHU, AAHU, SAAHU, MAHU, SCAHU, NCAHU and FLAHU.