Alternative-Funded Health Plans: A Good Alternative for Small Businesses

With small employer health insurance costs expected to rise again this year, interest in new ways to contain the increases continue to grow as well. And one approach that’s gaining popularity among these businesses is self-funding, sometimes referred to as alternative funding. Today, according to the 2018 Kaiser Family Foundation Employer Health Benefits Survey, 13 percent of covered workers at firms with 3 to 199 employees are in a self-funded plan.

Self-Funding Defined

With self-funding, the employer pays for the healthcare services that its workers receive directly from plan premiums and stop-loss insurance. Set premiums for 12 months minimize risk as does the integrated stop-loss insurance that limits employers’ liability for large claims or unexpected expenses. And unlike fully-insured plans, employers who are self-funded can either process claims themselves or utilize third-party administrators (TPAs) for claims processing, reporting, and related tasks.

Benefits of Going it Alone

While self-funding is most common among larger employers (those with 200 or more workers) since they can spread the cost of risk among a greater number of participants, smaller companies can also reap the plans’ benefits, including:

  • Savings: For those with healthy populations, self-funding can be cheaper since claims costs will likely be lower than the premium paid to an insurance carrier, who retains the excess premium at the end of the year. And those savings can be rolled over to offset the next year’s expenses or for other qualified benefits for the company. Self-funded employers also avoid paying the state health insurance premium tax, yielding another opportunity to save.
  • Flexibility: Employers who self-fund have more freedom to design a plan that works for them and the specific needs of their employees, for example, with the network. And, with transparency into claims data, business can see what’s driving costs and make design changes to mitigate them going forward.
  • Engagement: With self-funding, employers that incorporate wellness initiatives, price transparency, telemedicine, and other initiatives to encourage better healthcare choices among members will directly benefit from the results, which may not always be the case with fully-insured plans.

So if self-funding offers so many advantages, why don’t all small businesses embrace the option? The biggest potential drawback is that some services, like in vitro fertilization (IVF), aren’t covered so it’s important to understand your workforce needs.

Getting Started

To learn more about the difference between fully- and self-insured plans, download our comparison chart. For more information about self-funding and the administrative services Complete Payroll Solutions can provide, call 877.253.9020.

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