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To Fully Insure or Self-Fund Your Plan

This is the second in a series of articles highlighting large claims and other exposures as well as a variety of strategies you can employ to minimize the risk to you, your organization and your plan.

As healthcare costs have continued to escalate over the past decade, many employers have looked to self-funding to gain more control and mitigate the impact of the rising costs.  According to the Mercer National Survey of Employer-Sponsored Health Plans 2018, 75% of employers with 500+ employees self-fund their plan.   Implementing a self-insured plan introduces a significant amount of choice and customization.   One should consider the following when deciding whether to self-insure:

  • Do we have enough covered lives to effectively manage the plan? – typically you’ll want more than 250 covered lives but could go down to as little as 100 in the right circumstances
  • Do we have the appetite for risk involved in self-insured? – monthly and annual costs can vary significantly, and organizations who can accept the risk of high claims months or high claims years often see overall cost savings over time
  • Do we have capital available for initial transition as we build up a reserve?
  • Are we educated/informed enough on the nuance of the transition and ongoing management?

While it can initially seem daunting, there are some major advantages of self-funding:

  • Tax advantages
  • Minimizing or avoiding carrier profit, margin and retention
  • Cash flow advantages
  • Greater flexibility and control of plan offerings
  • Better access to data, to help customize benefit offerings to better attract, serve and retain members
  • Deeper understanding of plan costs, and access to an array of vendors to address cost drivers
  • Control plan costs

Conversely, there are added complexities and challenges that come with a self-insured plan.   You’ll have added coverages/carriers, more contracts, variability in monthly costs, increased responsibility to manage the plan, added complexity as a fiduciary, and potentially added regulatory burden.

It is important that you have resources experienced in program implementation to help you navigate the design, development and management of your new self-funded program.   To successfully transition, be sure to have a well-developed transition plan, commit to at least 3 years of self-insuring, have a multi-year strategy, and begin to utilize data to drive your plan decisions.   Additionally, pay extra attention to structuring your new plan set-up to be compliant with all applicable laws and regulations as this may differ from those governing your fully insured plan.

COMING SOON: The third article of this series will focus on the common pitfall of the “Flat” stop loss renewal.

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