Providing healthcare for employees is expensive, and, as an employer, you take on most of the cost. In fact, employers pay an average of 82% of the cost of employees’ premiums, which can add up fast. It’s the price that you pay to ensure a happy, healthy workforce. But if your employees remain relatively healthy all year, all of those premium dollars you’re contributing might never get used. If you’re wondering if there’s a way to provide healthcare to your employees and possibly get money back at the end of the year, then you should look into self-funded (or self-insured) health plans.
How Self-Funded Plans Work
Offering a self-funded, or self-insured, healthcare plan to your employees means that you are basically taking on the responsibility of paying for any healthcare claims that come up throughout the year. Instead of your employees (and you) paying a fixed monthly premium that goes directly to an insurance company, your employees pay into a pool of money that you set aside to pay for any medical expenses, like doctor or hospital visits or prescription drugs. It sounds pretty straightforward, right? Let’s take a closer look at how they differ from traditional, fully-insured plans.
Self-Funded vs Fully-Insured
There is a big difference between the way self-funded and fully-insured plans work. There are advantages to self-funded plans: they can offer more flexibility, and are often not subject to the same regulations and taxes that fully-insured plans are. Having one of these plans may also mean getting money back at the end of the year. But to help you look more closely at whether one of these plans might work for you, here’s how the two types of plans compare:
- Monthly costs – The monthly costs of a fully-insured plan are fixed. You pay a set premium price to your chosen insurance company, and this price is based on how many employees enroll. It will only change if that number changes. The insurance company uses this money to pay claims across a large number of employers.
With self-funded plans, however, you have both fixed costs and variable costs. You will still work with an insurance company to gain access to their network of doctors and hospitals and so you will pay some fixed administrative fees. However, you won’t have to pay for the profit margin that the insurance company adds to its premium prices, so you’ll be saving money on fixed costs. The variable costs will be the healthcare claims themselves. This amount varies per month based on how many claims your employees make. You will basically estimate how much you think your employees will need for healthcare costs per month and put that amount aside. This money is purely for your employees, unlike in a traditional plan, in which an insurance company uses premium dollars to pay for healthcare for employees of multiple businesses.
- Claims payment – With traditional plans, employees seek care within the insurance company’s network, and the insurance company processes the claims and pays the bill according to the agreement you have with them. Employees are responsible for any deductibles and copays in their plan.
With a self-funded plan, employees still seek care with a network of doctors and hospitals, but they submit their claims directly to their employer. The claim is paid out of the money that you have set aside for that purpose.
- Unused healthcare dollars – One of the frustrating things about traditional fully-insured plans is the inflexibility of the fixed costs. You pay a fixed monthly premium which doesn’t change no matter how few healthcare dollars employees actually spend, and you have no possibility of getting any money back at the end of the year.
But with a self-funded plan, each year you review the total month amount you set aside versus how much you actually paid out in claims. Any amount left over is split between you and the insurance company you’re working with, according to your agreement. For example, if you put aside a total of $150,000 for the year, but only had claims totaling $100,000, your year end balance would be $50,000. In this situation, you might pay $15,000 to the insurance company for administrative costs, leaving you with an extra $35,000.
The Risks
There are benefits to self-funded plans, but also risks. There is a reason self-funded health plans are usually associated with bigger businesses: larger companies have a bigger pool of employees paying into the healthcare fund, and so there is less of a chance of one large claim devastating the employers’ finances.
If you have a younger, healthier workforce, and your business doesn’t have a high risk of physical injury, then a self-funded plan could work. But if you have an aging workforce or employees with health issues, self-funding could place too much of a strain on your finances. And remember, one unexpected large medical expense, like an organ transplant, could spell disaster for your business, especially since you don’t have a lot of employees to keep premium dollars coming in.
You do have one option, however, to lessen the risk. If you have decided that you want to take the leap and try a self-funded plan, then you can purchase stop-loss insurance to protect your business from a catastrophic loss.
Whatever type of plan you’re considering, EZ.Insure can help. We get it, it’s complicated and there’s a lot to consider – so come to us, speak directly to your own personal agent, get the best possible advice, and the fastest, most accurate quotes, all for free. We’re here anytime you need us so get started today by entering your zip code in the bar above. Or to speak with an agent directly, call 888-350-1890. No hassle, no obligation!