What is Self-Funding and What are the Benefits?

Interior of car showing person's arm on steering wheel

Think about self-funding like when you bought your car. 

Like most people, you probably did your homework: you shopped different manufacturers, compared models, and searched for the best price. When it was time to make the purchase, you knew exactly what you were paying for and felt great about your decision. 

So, why not apply that same mindset to shopping for a health plan?

For a long time, employers felt the only insurance choice they had was a fully insured plan provided by a “BUCA”: Blue Cross, United, Cigna, or Aetna. 

These plans are “fully insured”, meaning the insurance company charges the employer a set premium amount in exchange for covering the cost of claims throughout the year. While that can work for some groups, what about years with low claim costs? Who keeps the money? In a fully insured plan, the insurance company does and they’re like the casino – they always win. Even if you have a bad year and pay less in premium than the claims cost would have been, you can imagine what your renewal offer will look like.

But that’s where another option comes in: self-funding.  

Self-funding simply means that the employer funds the core payment method for the health claims of employees. Self-funding only requires a few partners to help you create and manage a health plan on your terms. Instead of paying a premium each month, you fund the incurred claims and keep the money that isn’t used.

Self-funding is about three things: control, cost, and quality. Companies seeking more control of the cost and quality of their healthcare are prime candidates to become self-funded. 

To improve the health of employees and the bottom line of a business, self-funding provides these key benefits:

  • Direct control over plan coverage: you select your key partners, a Third-Party Administrator (TPA), a Pharmacy Benefit Manager (PBM), and a broker (optional), based on the goals of your business. They work with you to create a custom plan that takes your current population’s health into account while relying on their expertise to prepare for the future. 
  • Opportunity for Savings: Building a high-performing, self-funded plan means you can save money. Rather than having to pay the same premium every month, regardless of claims activity, employers pay based on the actual use of the health plan. This means that if you don’t use the money set aside for claims, you decide how you’d like to use it, not your health insurance company.
  • Deep insight into health and prescription claims: Actionable insights are key to a high-performing health plan that actively works to keep employees healthy, which translates to more savings for the business. Self-funding allows you to play offense–not defense–when managing and implementing your health plan.
  • Flexibility to adapt and adjust throughout a plan year: Unlike fully insured plans that are locked in until renewal time, most self-funding partners are nimble enough to adjust mid-year if it will benefit the group.

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