Contact Us

About Self Funding

Self funding (and a few alternative funding options) offer a range of advantages.

Rather than paying month after month for benefits that may not be used, you instead pay actual costs incurred by your employees.

Insight Benefit Administrators helps you select the exact benefits plans you need, and we handle all of the administration. You get more control and flexibility with the benefits you offer and your HR staff can focus on other tasks.

We have vetted dozens of providers of health benefits, vision and dental, and short term disability and we bring you those that are highest-rated and most efficient.

Administrative costs are lower

  • You don't pay premium taxes
  • You don't have to offer state mandated benefits if you choose not to
  • There are no medical loss ratio requirements
  • You pay none of the health insurance industry fees that help fund State and Federal Health Insurance Exchanges
  • You're free from many Affordable Care Act fees
  • Your financial risk is managed with Stop Loss insurance
  • You get detailed reporting, providing you with a clearer understanding of how your dollars are spent

While there are more administrative decisions for you to make, we’re here to guide you. We have the insight needed to pull all the parts together to result in a comprehensive benefits package that fits your needs and your employees’.

We know that to win your business — and keep it — we need to offer the best value and service your benefits dollars can buy.

Self Funding 101

Unlike fully insured health carriers that charge a set amount of premiums regardless of the claim costs, self-funding allows you to pay for only the claims incurred by your covered members. 

Self-funded coverage consists of claims costs, reinsurance premium and third party administration costs. Fully insured coverage consists of set monthly premiums, multiplied by the number of covered members on the plan. With a fully insured plan, you face the same premium every month regardless of the claim costs that are actually incurred. And outside of continually increasing members’ out-of-pocket exposure (deductibles, copays and coinsurance) you have a limited ability to impact annual premium increases.

With Self Funding you partner with a Third Party Administrator (TPA) to provide overall administration of the plan. A TPA provides services including:

  • claims payment
  • customer service
  • stop loss selection
  • network access
  • pharmacy benefit management services

Reinsurance – your safety net

There are two basic types of reinsurance coverage:

Specific Coverage:
Specific coverage is purchased to protect you from very high claims incurred by an individual. Each individual member is covered after a certain dollar amount of claims are incurred. Any claims dollars incurred above that deductible are then covered by the reinsurance carrier.

Aggregate Coverage:
Aggregate coverage protects you from high claims across your entire group. Any claims dollars incurred above an agreed upon dollar amount (also known as the Attachment Point) are covered by the reinsurance carrier.

Level Funding (aka Shared Funding) as an alternative to Self Funding

Level funding combines the advantages of self funding with the benefit of set monthly costs you’d get with a fully funded program. If claims are less than the funded amount at the end of the year, you get a rebate or credit. If claims for the year are higher than the amount you funded, the overage is partially or fully covered by stop-loss insurance.

Level-funding can lower your cost over a fully funded plan:

  • You can still tailor your plan to your specific needs
  • State taxes are eliminated
  • Your costs don’t include the profit margins and risk charges that come with a fully funded plan from an insurance carrier.
  • Level-funded plans are exempt from many of the federal healthcare law’s health insurance taxes 
  • Level-funded plans can be paired with a Flexible Savings Accounts (FSA), Health Savings Accounts (HSA) or Health Reimbursement Accounts (HRA)

 

Captive Insurance

Captive insurance is another alternative to self-insurance in which you or you and a group of other employers create a licensed insurance company to provide coverage yourselves. The main reason for creating a captive insurance plan is to avoid volatile pricing and restrictions on what your benefit plan can include. When a company creates a captive plan they are indirectly able to evaluate the risks of subsidiaries, write policies, set premiums and either return unused funds in the form of profits, or invest them to cover future claims.

Captives can be set up in a number of ways:

  1. Non-sponsored — The company is the creator and beneficiary. The most common are single-parent or “pure”, group and association.
  2. Sponsored — The captive is owned and controlled by another company that allows other companies to “rent” insurance.

 

To learn more about Captive Insurance, please contact Howard Lancaster.

Getting started – obtaining a quote

When you’re ready to look into specifics of cost, be prepared to provide:

  1. Premium information (current, renewal, two-year history)
  2. Schedule of Benefits for current plan(s)
  3. Enrollment in Current plan(s) and history for the most recent 12 months
  4. Employee/covered members Census Data including ages, gender, dates of birth, zip code and contract size
  5. Diagnosis and prognosis on large claimants in the most recent 12 months
  6. Current Network
  7. Claims history when available (current and two-year history)
  8. Pharmacy Rebates and Discounts

 

Insight Benefit Administrators can guide you as you gather the information needed for a self funding quote.

Self Funding vs. Fully Funded

Fully insured health carriers charge set monthly premiums regardless of the actual claim costs incurred by covered members. Self-funding allows you to pay for only the claims incurred by your employees and their covered family members.

Self-funded coverage consists of monthly claims costs, reinsurance (stop loss) premium and third party administration (TPA) costs. Fully insured is a set premium from the insurance carrier. The premium remains the same, regardless of employees’ use.

Outside of continually increasing members’ out-of-pocket exposure (deductibles, copays and coinsurance) you have limited ability to impact annual premium increases.

Unlike fully insured health carriers that charge set monthly premiums regardless of the claim costs, self-funding lets you pay for only the claims incurred by your covered members.

The Role of the Third Party Administrator

A Third Party Administrator (TPA), like Insight Benefit Administrators, provides overall administration of the plan. TPA services are tailored to your needs and include:

  • reviewing and paying claims
  • customer service for covered members and the employer
  • assistance with selecting appropriate stop loss coverage
  • access to local and national provider networks
  • pharmacy benefit management (PBM) services

 

Stop Loss or Reinsurance: Your Safety Net

There are two basic types of stop loss coverage:

SPECIFIC COVERAGE:

– Specific coverage is purchased to protect the employer from individual high claimants. When an individual members’ claims reach a certain dollar amount, any claims above that are then covered by the reinsurance carrier.

AGGREGATE COVERAGE:

– Aggregate coverage is purchased to protect the employer from high claimants across the employer group. Any claims dollars incurred above a certain dollar amount (also known as the Attachment Point) are then covered by the reinsurance carrier.

Self Funding 101

Self Funding 101 – The Basics

Employers of nearly any size can reduce their overall costs of employee benefits plan with self-funding. We’ll cover just the basic concept here.

Instead of paying high premiums to an insurance company each month, regardless of any health care claims employees may or may not incur, you pay the actual cost of your employees’ incurred expenses.

Fully Funded Benefits

With traditional, fully funded health benefits the employer pays a health insurance provider a set premium amount every month, determined by the number of covered employees and the chosen plan design. The insurance provider pays whatever claims may have been incurred each month, and keeps whatever dollars are “left over”. While the health insurance provider assumes all the risk of high claims cost they also keep any unused benefits so have a financial advantage when claim costs are low.

Self-Funded Benefits

In a self-funded arrangement, you pay only for health care claims that were actually incurred for the period. You assume the risk for potential high claims costs but when claims costs are low, you save what would otherwise be paid in premium to an insurance company.

Rather than engaging directly with a health insurance carrier, you instead purchase Third Party Administration services (also known as Administrative Services Only). The TPA provides all the same services a health insurer would, such as enrolling members, auditing and paying claims, health & wellness services, case and disease management and so on. The TPA manages all of the details.

Part of what you purchase includes Stop Loss Insurance to protect yourself from high claims costs. Stop loss is simply that – your loss (payout on claims) stops at a certain point. Stop loss levels can be set for each covered individual (specific stop loss) and/or for the entire covered group (aggregate stop loss).

The math: Employers can typically save money by being self-funded.  Actual claims costs plus TPA services and stop loss insurance, plus freedom from some federal and state regulations*, results in lower monthly and long-term costs than those of fully-funded premiums.

*Self-funded employers are:

  • Able to set any maximum deductible they wish
  • Are free from community rating
  • Not required to provide coverage with minimum essential benefits
  • Not required to participate in a risk-adjustment system
  • Not subject to provisions such as medical loss ratio requirements or premium increases.
    The medical loss ratio or MLR requires fully insured plans to spend 80-85 percent of every incoming dollar on claims, limiting profits and administrative costs to 15-20 percent.

 

Historically self-funding has been most effective for large employers but with the continuing rising cost of health care, self-funding has become an attractive and viable option for small employers.