Self-funded health plans are an alternative for companies that do not want to continue offering health benefits through traditional group insurance. As an alternative to more traditional coverage, self-funding gives employers yet another employee benefits option. It is an important option in light of mandates enacted by the Affordable Care Act (ACA) more than a decade ago.
Nevada-based StarMed Benefits (visit their website here) says self-funding has its pros and cons. They also say that companies have a variety of reasons for choosing the self-funding model. Five such reasons are discussed below. Ultimately, employers need to choose whatever is best for themselves and their employees.
1. The Option to Customize Plans
A self-funded health plan is funded entirely by the employer and its employees. For that reason, plans do not have to be of the one-size-fits-all variety. Employers have the freedom to customize plans to meet the specific health needs of its workers.
Customization leads to a range of additional benefits, not the least of which is the ability to control costs. Employees do not have to fund services their employees probably won’t use.
2. The Ability to Greenlight Alternative Treatments
Employees who choose to self-fund their health plans have access to alternative treatments insurance companies normally won’t touch. A good example is regenerative medicine. Procedures like platelet-rich-plasma (PRP) therapy and stem cell injections generally aren’t covered by insurance companies. Employers may choose to cover them in their self-funded plans. Doing so can ultimately save quite a bit of money.
Along the same lines, a self-funded health plan could also offer telemedicine services to employees. Encouraging them to use telemedicine further reduces what their employers pay for primary care.
3. Complete Control Over Plan Reserves
Self-funded employers maintain a cash reserve to pay claims as they come in. They maintain complete control over those cash reserves, which ultimately gives them the opportunity to invest the reserves as they see fit. In doing so, they are mimicking what insurance companies do with premiums. But as self-funded benefit providers, they end up earning the interest income on reserves rather than turning it over to insurance companies.
4. Freedom from Some Regulations and Taxes
Self-funded health plans are regulated by the federal government via the ERISA. They are not subject to state regulations. Therefore, choosing to self-fund frees employers from having to deal with state regulations that often conflict with their federal counterparts. In the end, this makes for easier plan administration.
In addition, self-funded plans are not subject to state health insurance taxes. In some states, health insurance taxes can be as much as 3% of a plan’s premium value. The money saved by not having to pay state taxes can go back into the plan itself.
5. Freedom to Contract with Service Providers
Employers choosing to offer self-funded plans have the freedom to contract with service providers as they see fit. It is not unusual for them to work through a plan administrator like StarMed Benefits, as doing so gives them access to the same provider networks insurance companies utilize.
Accessing local networks makes it possible for self-funded plans to offer all the same services traditional insurance plans cover. This includes things like prescription discounts, vision care, in-office primary care visits, etc.
Self-funded health plans are not right for every company. As effective as they are at providing affordable health benefits, the plans do have their weaknesses. It is in an employer’s best interests to weigh the pros and cons side-by-side, then determine the best course of action moving forward. For many employers, this means foregoing traditional health insurance in favor of a self-funded health plan.