Moving to a partially self-funded (also known as a partially self-insured or just self-insured) plan allows an employer to overcome most of the burdensome regulationsSelf insurance plans are exempted from community rated quoting, guaranteed issue / renewal, 80% medical loss ratios, actuarial value “metal” limitations, essential health benefits, and the $2,000 maximum deductible
and taxesSelf insurance plans are exempted from the Health Insurance Industry Tax (HIT), Marketplace Insurance Marketplace Tax, Risk Corridor Tax, Risk Adjustment Fee, State Premium Taxes, and potentially the Cadillac Tax. These taxes add up to 8%-50% of the cost of a plan.
, potentially reducing insurance costs by 40%-80%. Through proper planning, these plans can help employers overcome much of the burden of the employer mandate, especially for industries that can’t afford full insurance for their employees. This allows restaurants and other industries to focus on running their businesses instead of limiting their employees down to 29 hours a week.
How it Works
A self funded plan looks like a traditional “fully insured” plan to the employees. The major difference is that the employer agrees to take some risk in exchange for reduced premium. An employer has choices of risk tolerance ranging from virtually no risk per employee (for smaller companies) all the way to deductibles of several hundred thousand dollars (for very large employers). Typically, the “worst case” cost scenario for an employer is often structured to be comparable to the premium the employer would otherwise pay for a fully insured plan. As an example, if a fully insured plan costs $400 per employee per month, a self funded plan may cost $250 if no employees had any claims, $500 if every employee maxed out their claims, and $350 based on the expected claims estimates.
While these plans have historically been available only to large 100+ person companies, they now can make sense for companies as small as 5 employees. Self-funded plans can either be offered as a one-stop shop package from the insurance carrier (called a carrier-driven or ASO model) or as a build-it-yourself combination of components (called TPA-driven model). The main elements of a self-funded plan include:
- Third Party Administrator (TPA)
- Specific insurance carrier (aka spec, specific stop loss, or deductible)
- The aggregate insurance carrier (aka ag or aggregate stop loss)
- The provider network
- Pharmacy Benefit Manager (PBM)
- Broker or Insurance Consultant (recommended)
- Wellness Provider (optional)
- What if my employees have catastrophic claims?
The specific and aggregate deductibles cap out your losses
- When do I pay the claims?
The employer would pay claims as they occur from a separate bank account. Many carriers offer “level funding” plans where the payments are the same each month, regardless of claims spikes.
- What plans can I offer to my employees?
Any plans you would offer in a traditional “fully insured” plan plus you have a lot more flexibility for new option.