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Potential Pitfalls of Self-Funding Medical Benefits

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There is a lot of talk about self-funded or level-level funded medical plans as a way for companies to save money on health benefits… for good reason. It is possible for employers to save 20% or more of health plan costs with self-funding. But what are some of the potential downsides of self-funding to consider?

  • Although there is stop-loss insurance in place, typically, the total plan cost can be 20% to 25% more than fully-insured if the claims level is significantly higher than projected.
  • Only employers with proof of better than average claims expense should consider self-funding.
  • There can be a higher risk of liability since the employer is technically the insurer of the plan, and not an insurance company.
  • Employers with under about 500 employees should seek out a “partially self-funded”, or “level-funded” contract, where monthly claim reimbursement levels from employer funds are capped at the level of a fully-insured plan, or at one-twelfth of the total expected paid claims. Without this protection, only one month of higher than normal claims can be a burden for a smaller company.
  • Employers need to work with a broker or consultant who has experience with setting up and working with TPAs and stop-loss carriers. Also, there are compliance and cost issues that require the help of an experienced professional in self-funding.

Self-funding is an attractive alternative to fully-insured health plans for many companies. Self-funded policies are now available to employers with as few as 10 employees in some areas. With proper stop-loss insurance levels and an experienced professional to guide the way, more companies than ever can save money by implementing self-funded Health plans.

In his career, Gregg has developed specialized expertise in “consumer-driven” and high deductible health plans with HSA and HRA strategies, and sold the first HSA plans issued in Virginia through Assurant Health. He is an expert in analyzing plan design data and has served as account executive for national accounts such as Coca-Cola Enterprises and Tenet HealthCare. Gregg utilizes a strategic approach to establish goals based on each client’s unique culture and competitive environment, and measuring results against jointly established criteria. Gregg Kennerly is a Principal at Advanced Benefit Strategies of Virginia, LLC.
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