The increase in health care costs in the country forces many companies to look for more effective ways to manage expenses on their employees’ benefit plans. Additionally, experts say that overall healthcare costs are expected to increase by an average of 5.5% annually over the next decade.
What It Is
An option that many businesses consider is self-funding insurance. Generally, it refers to a plan where the employer takes on the financial risk for providing health care benefits to employees.
This is how it differs from traditional health insurance. Instead of paying a pre-determined premium to an insurance provider, the company will be paying claims out-of-pocket as they are received.
Typically, the company will be setting up a special trust fund specifically dedicated to paying incurred claims in the future. Then, a third-party administration (TPA) will be in charge of processing claims on behalf of the company. Some TPAs may also offer additional services like collection of premiums, provision of utilization review of claims, and provision of overall service for the benefit plan chosen. However, some organizations also choose to complete the claims in-house.
Why Switch to Self-Funding Insurance
There are many reasons why companies switch to this type of insurance. Here are some of the most common:
- Transparency – There are available apps and tools that help employers analyze claims data. This way, it is easier to make timely and well-informed decisions that will improve the well-being and health of employees.
- Cost Savings – There are many ways to save money when implementing self-funding. For instance, companies that hire TPAs can save more money on health plans per enrolled employee than they would with a traditional insurance policy. That is because the TPA works to manage the plan based on specific considerations set by the company instead of according to a carrier’s policy.
Offering self-funded plans may also reduce premium taxes. These plans are subject only to the federal Employee Retirement and Income Security Act (ERISA). So, usually, there will be no state mandate costs.
- Flexibility and Control – Insurance policies depend on the needs and circumstances of the person purchasing it. So, it is important to find a plan that meets the unique needs of a company and its employees. With self-funding, a company can customize the benefits and choose the healthcare solution suitable to its requirements.
- Enhanced Cash Flow – Perhaps the biggest reason why many businesses choose to switch to self-funding insurance is to improve cash flow. As stated earlier, this type of insurance provides more flexibility. Employers will only be required to pay claims as their services are rendered. That means they can have more control over the company’s cash flow.
Getting Help
The healthcare industry has changed over time. That means there are new options that arose. However, choosing the right policy can be challenging.
Fortunately, it is not something a company has to face alone. There are reliable companies like National Insurance Partners that are ready to help. Contact us now to find out how your company can benefit from our services.