When Should You Be Considering Switching to Self-Funded Insurance?
Even though the nuances of healthcare can be difficult to quantify and measure, more employers are tackling the issue head-on in an effort to contain their costs.
One of the biggest actionable steps that can be taken in the direction of containing rising healthcare costs is implementing a self-funded insurance plan. Whether it’s a growing business looking to switch from a fully-funded plan or a large employer looking to offer employees healthcare for the first time, it’s useful to know the signs that self-funded insurance might be a good fit.
Switching to Self-Funded Insurance Is Different for Everyone
To ensure we’re all on the same page, let’s quickly review the difference between fully-insured and self-funded insurance:
The most fundamental difference between fully- and self-funded insurance plans comes down to one question: “who is going to assume the risk?” In this case, risk pertains to insurance risk, or who is going to pay the hospital when an employee needs to go to the doctor?
Fully-funded plans work because they shield smaller businesses from large and unexpected healthcare costs by placing the risk assumption on the insurance carrier. But, the traditional wisdom says that as a company grows, the increase in that fully-funded premium eventually becomes less efficient than the employer paying for the claims on their own.
However, knowing when to switch is different for every single company because while self-funded insurance programs come with tax exemptions on the federal level, they also incur other costs. Employers will need to factor in the amount of stop-loss coverage they will need to purchase for their member population when they switch to self-funded insurance. The types and coverage amount of stop-loss insurance can change with the needs of the employers, but that of course will be reflected in the monthly premium that ends up needing paid.
Signs that a Switch to Self-Funded Might be Needed
The addition of stop-loss insurance premiums into the equation really give employers the information they need to understand when switching to self-funded insurance would be an overall benefit. The two numbers to compare are the fully-insured premium and the combination of the premiums from the self-funded insurance plan added into the necessary stop-loss insurance. As a company grows, there will come a time when the bulk premium of a fully-funded insurance plan will outgrow the potential savings of switching to a self-funded setup. Generally, that number is around 200 member lives, but that number is fluid between different companies and different situations.
Another great reason for employers to switch to self-funded insurance plans lies in the data reporting side of healthcare. In fully-funded programs, insurance carriers are handling all of the member claim data, so it can be difficult for employers to understand what’s going on with their members in a timely fashion. That isn’t as much of an issue when employers make the switch. Self-funding insurance plans and a health intelligence tool like Springbuk can access and analyze healthcare data on a much quicker timeline, giving employers the ability to react to healthcare data in weeks instead of years.
Self-funded insurance plans also offer employers the ability to customize their plan designs to fit the needs of their member population. In order to be cost efficient to the most amount of small businesses, fully-insured plans come customized without much flexibility, but once employers take on the risk to fund their own healthcare claims, they can pick design their coverage around the things most important to their members.
So step back and take a look at the bigger healthcare picture before deciding between when to switch between fully-insured and self-funded healthcare programs. There is nuance in the decision, but keeping the needs and best interests of your members in mind is always a good place to start.