Myths of Self-Funded Health Plans: There’s Too Much Risk
There’s Too Much Risk in Self-Funded Health Plans.
Let me explain.
In a fully insured medical plan, an employer pays a premium to an insurance carrier each month and the carrier then pays the claims incurred by an employer’s members. Each covered primary, urgent care visit, x-ray, or surgery is paid for by the insurance carrier. If there are no claims, the employer still pays the same monthly premium. If there are lots of claims in a particular month, the employer still only pays the premium (but hang on for that renewal increase!) In a self-funded medical plan, the employer pays the claims that their members incur, so it only seems logical that an employer would be taking on significant risk if there are excessive claims, correct?
Enter our first Myth of self-funding: It’s too risky to self-fund an employer’s medical plan.
The truth is that most self-funded plans purchase stop-loss insurance to mitigate claims for large individual claimants (specific) and for claims that accumulate during the year for all members of a plan (aggregate). Many smaller employer groups can also purchase monthly aggregate coverage to manage their cash flow during the year. There is also coverage for claims with run-out protection should the employer decide to terminate the plan and move to another stop-loss or an insurance carrier.
Let’s take this a step further. In a self-funded plan, an employer and administrator have significantly more access to data on the underlying claims and an opportunity to control costs. A good Third-Party Administrator pays claims and delivers reporting. An exceptional Third-Party Administrator not only does that but helps an employer to reduce claims through population health strategies based on the specific conditions within a group, the locations claimants are receiving their care, and if their providers are following evidence-based care.
Most fully insured plans deliver premiums paid vs overall claims paid. Perhaps they include some large claims data. However, most carriers won’t give detailed claims data unless an employer is very large. It’s the equivalent of going to the grocery store, checking out, and getting a total receipt without an itemized breakdown of the items you purchased.
How can a group control costs if they don’t even know what type of claims they’re paying?
So, let’s go back to our myth. Is it too risky to self-fund your health plan? No. Underwriting a plan before implementation allows a group to identify what kind of underlying risks exist. Stop-loss coverage protects the group from large individual claims and large numbers of high-cost claims across the entire group. Cash flow can be protected. The reduction in insurance costs and taxes and the ability to control claims and pharmacy costs with a great TPA make self-funding a health plan appealing to more and more groups every year.
Care to explore the option? Reach out to a New Edge Solutions representative to run the analysis.