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Self-Funded Healthcare FAQs

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Discover the Advantages of Self-Funded Healthcare

Why are thousands of small and medium-sized businesses switching to self-funded healthcare plans? In our world of constantly rising healthcare costs, the answer is simple: self-funded healthcare makes it possible to provide better, more flexible, and more innovative healthcare options at a significantly lower cost. With self-funded healthcare, your business can:

  • Create a completely customized benefit structure that perfectly matches the needs of your organization and your employees.
  • Gain complete control over how your healthcare dollars are allocated and spent
  • Significantly lower administrative costs and other overhead expenses
  • Invest unused healthcare dollars back into your business
  • Improve benefits and lower healthcare costs without taking on unacceptable risks
  • Develop your own tailored reporting package
  • Take advantage of multiple national and regional PPO options

How Self-funded Healthcare Works

With traditional insurance plans, you pay a set premium based on the size of your business, the health histories of your employees, past claim histories, and other factors. If your actual healthcare costs are less than the amount you pay in premiums, the insurance company keeps the difference. If those costs are more, the insurance company pays the difference. In other words, you pay for the right to transfer all of your company's healthcare-related risks to your health insurance provider.

Self-funded healthcare gives you the option of taking back some of that risk in exchange for lower premiums, more flexibility and increased control. With self-funded plans, your organization pays a set amount - rather than a traditional insurance premium - into a special account that you control. When a plan member sees a physician, goes to the hospital, or has a prescription filled, those costs are covered by funds from the account. In most cases, self-funded plans include a relatively inexpensive stop-loss health insurance plan to cover medical expenditures above a certain limit, which minimizes the risk and limits the potential loss for your business.

Most self-funded healthcare plans are maintained and administered by a third-party administrator (TPA). Your TPA processes and pays claims, manages administrative and overhead costs, and pays applicable stop loss insurance premiums. With a competent TPA, self-funded plans work just like traditional healthcare plans. Participants receive the same materials they're used to, including insurance and prescription cards. When members see a physician, go to the hospital or have a prescription filled, the TPA processes and pays the claim. In fact, the only difference your employees will notice is a broader range of healthcare options.

The Advantages of Self-funded Healthcare

Self-funded healthcare - backed by an appropriate stop-loss insurance plan - offers a number of important advantages over traditional health insurance:

  • Lower costs - Traditional health insurance plans use around 30% of your premiums to cover administrative fees, re-insurance, general reserves, insurance provider profits, and other overhead costs. With self-funded plans, those overhead costs typically drop to less than 20%. And of course, your business gets to keep the difference.
  • More flexibility - With traditional health insurance, you choose from a limited number of inflexible pre-defined plans. With self-funded healthcare, you design customized plans from the ground up - and then fine tune and adjust them over time to get even more value from your investment in healthcare.
  • More control - Other than the limited options offered at your annual renewal, you have virtually no control over how your health insurance premiums are spent, and you never see any of that money again. With self-funded healthcare, you maintain total control over your investment. If your healthcare costs turn out to be lower than the amount you pay into the plan, you keep the difference, and you can use those extra funds to provide additional benefits, offset future costs, or whatever you choose.