Self-Funded Health Plans

A self-funded (or self-insured) health plan is one in which the employer assumes some or all of the risk for providing healthcare benefits to its employees. The employer, acting as the fiduciary, controls and invests the assets of the plan and eliminates the charges incurred from insurance company. Advantages of self-funded plans include:

  • Self-funded plans are subject to federal regulation rather than state regulation thereby giving an employer more control over the plan benefits.
  • Agents or brokers assist the employer in developing a customized employee benefit plan. This plan may be very similar to one previously offered on a fully-insured basis.
  • Employees see the employer as the benefit provider rather than the insurance company, creating a more stream-lined system.
  • A self-funded employer only pays benefits based on his employees’ histories and/or claim experience.
  • The employer retains control over the health plan reserves, enabling maximization of interest income.
  • Self-funding offers cash flow advantages not found in fully insured arrangements.
  • An employer only pays for the claims he incurs during the contract year, and the coverage is not pre-paid, thereby improving cash flow.
  • An employer does not pay state premium taxes, which usually range form 2% to 3% of the monthly insurance premium.

Click here for a flow chart of a self-funded claim.

Stop Loss Coverage

Stop Loss coverage is a protective option many self-funding employers purchase in order to maintain an extra measure of financial security. This excess risk coverage protects against unforeseen catastrophic claims that cost more than is budgeted for within the health plan, thereby eliminating undue financial burden from the employer. The two forms of stop-loss coverage available are:

  • Specific coverage: Specific coverage insures against a single catastrophic claim that exceeds a dollar limit chosen by the employer and agreed to by the stop loss carrier. For example, specific coverage would come into play if one of the covered participants was in a catastrophic accident and had claims that exceeded the agreed upon dollar limit (known as the specific deductible). In this case, the specific coverage would reimburse the employer for the covered expenses beyond that dollar limit.
  • Aggregate coverage: Aggregate coverage insures against all claims which exceed a specific dollar limit chosen by the employer and agreed to by the stop loss carrier. If all the claims payable exceed the agreed upon dollar limit (know as aggregate liability), aggregate coverage would reimburse the employer for the excess.