Nowadays, healthcare costs are on an upward trend. With most businesses still recovering from the impacts of the pandemic, many may find it challenging to provide for their staff’s health benefits, for example, employers can expect to pay upwards of $8000 in insurance premiums per employee.
If your organization is a small or mid-sized enterprise (SME), getting health insurance for your staff can be prohibitive. Yet, as an employer, you have the responsibility to take care of your employees’ health and wellbeing. After all, having healthy and happy staff is ancillary to business success.
Many SMEs that find themselves in such a conundrum have turned to alternative ways of providing for their employee’s health benefits. In particular, a lot of businesses have found it beneficial to switch to self-funded health insurance. In this article, we’ll talk about the advantages of this solution, and the things you need to consider before deciding to set up your own organization’s health plan.
Advantages Of Self-Funded Health Plans For Businesses
Businesses decide to sponsor their own health insurance because it’s more cost-effective and customizable than the traditional option of subscribing to fully funded insurance.
Traditionally, employers would have subscribed their employees to a set of insurance policies offered by big insurance companies. These policies would offer a one-size-fits-all package of health benefits and services. They are also paid for by the employer at a fixed rate (premium), regardless of whether their employees actually use or benefit from the services included in the policy.
While big corporations may be willing to pay expensive premiums at fixed rates, this may not be an option for SMEs that don’t have the same buying power as larger companies. In fact, because they only need a limited number of policies due to their small workforce size, SMEs pay 8-18% more on their premiums than bigger companies do.
Self-funded health plans allow employers to pick and choose the best-fit services for their employees and pay only for those services. This is why a lot of businesses nationwide — are switching to self-funded health insurance.
Assessing The Viability Of Sponsoring Your Own Health Insurance
Before you jump in and decide to set up a self-sponsored health plan for your business, you must first consider the following items:
- The risk of shock claims – Catastrophic health insurance claims can place a heavy financial burden on your business. If you’re an SME, funding such claims can derail your organization’s financial stability. You need to assess this potential liability before you decide to sponsor your own health plan.
- Your employees’ collective health needs – How many people does your health plan need to cover? Do most of them belong to a demographic that’s associated with growing healthcare needs? Are your employees in a line of work that comes with greater hazard risks? You need to take these factors into consideration when thinking about the viability of paying for your staff’s potential health claims.
Legal Responsibilities That Come With Self-Funded Health Insurance
If you decide to fund your own health insurance, you are exempt from burdensome state regulations that apply to traditional fully-funded insurance. However, you are required to comply with the requirements of the Employee Retirement Income Security Act or ERISA.
Under ERISA, businesses are required to appoint individuals with discretionary authority over the health plan and its assets. These individuals are required to fulfill the following responsibilities:
- Act with the sole onus of providing benefits for the people covered by the plan
- Follow the provisions of the company’s health plan, and act in the best interest of those covered by it.
- Ensure that appropriate reserve funds are maintained to back the plan’s assets
- Oversee payments for plan expenses, ensuring that such expenses are sound and reasonable.
- Follow the general code of ethics and standards of conduct.
If your business is planning to set up its own self-funded health plan, we have an expert team ready to assist you. Contact us today at National Insurance Partners