Mastering Healthcare Costs: Independent Self-Funding 101

by | Mar 7, 2024 | Uncategorized

Did you know that 58% of all U.S. companies are self-funding their health plans? This significant figure underscores a growing trend among employers actively seeking innovative solutions to manage healthcare costs efficiently.


While self-funding is a prudent choice for most businesses with 50 or more employees, maximizing self-funding requires active plan management, embarking on this path without the right partners or access to essential data can be akin to setting sail without a map. Partnering with independent experts offers a stable and guided journey, providing the support, data transparency, flexible plan design, and cost control commitment essential for success. We call this, “Independent Self-Funding”. Curious how this could make a positive impact on your business?


Let’s explore how this works.

What is Self-Funding?

Starting with the basics, a self-funded (or self-insured) plan means the employer assumes the financial risk for their employees’ healthcare costs. Rather than paying fully loaded fixed premiums to an insurance carrier, employers pay a much lower fixed cost for administration plus the members’ medical claims as claims occur.

We use “self-funded” for simplicity, but the employer only funds claims up to a specified cap, called the stop-loss. Beyond this cap, a stop-loss policy comes into play. Think of stop-loss insurance as a safety net for employers. It ensures that when health claims reach exceptionally high amounts, an insurance company will cover these excessive costs. This way, employers are protected from bearing the full financial burden of unexpected or high cost medical claims.

Advantages of Independent Self-Funding: 

  • Cost Control: Employers pay a minimal monthly premium for stop-loss insurance, significantly lower than traditional health insurance premiums.
  • Transparency: Administrative costs are clearly outlined and charged by the TPA, often resulting in lower overall costs.
  • Cash Flow Benefits: The employer retains funds not spent on claims, enhancing financial flexibility and planning for future healthcare strategies.
  • Immediate Savings: Cost containment strategies directly reduce medical claims, allowing for immediate realization of savings.
  • Customization: Plans can be tailored to meet the unique needs of the company and its employees, with the flexibility to make adjustments as needed.

Traditional vs. Independent Self-Funding

In traditional self-funding, employers work directly with large insurance providers—often called BUCAs (Blue Cross, United, Cigna, Aetna). These companies provide a package that includes their networks and services, which restrict how much employers can customize their plans. This setup often makes it hard for employers to access claims data, limiting their ability to control costs.

In contrast, independent self-funding takes a different approach by separating, or ‘unbundling,’ the various parts of a health plan. This allows employers, with the guidance of a Benefits Advisor, to pick and choose the partners that best fit their unique needs and goals. This method promotes transparency, offering employers complete access to claims data, which is crucial for making informed decisions and managing the plan effectively. By choosing partners that truly align with their strategy, employers can avoid conflicts of interest and tailor a plan that’s both cost-effective and responsive to their employees’ needs.

Breaking Down Self-Funding

Sound like Greek? Here’s a quick and easy reference guide for common Self Funding Terms!

The Third-Party Administrator (TPA) serves as the plan quarterback, combining pharmacy,  network, and stop-loss partners into one cohesive plan. The TPA oversees plan documents, claims processing, and member services. The key to using an independent TPA is flexibility in partners, plan design, and getting full access to claims data.

Pharmacy Benefit Manager (PBM) processes prescriptions for the plan. An independent, transparent Pharmacy Benefit Manager (PBM) charges a fixed cost rather than spread pricing and passes through all discounts and rebates to the employer.

A PPO  (Preferred Provider Organization) Network lists healthcare providers with whom the health plan has negotiated discounted rates. An independent model rents a network rather than it tied to the plan administrator. There is also an advanced option to design the plan without a network – this is called Reference Based Pricing (RBP).

Stop-loss insurance limits the group’s risk by providing a safety net against high claims. Specific Stop-Loss Insurance offers protection against large claims by a single member(s), while Aggregate Stop-Loss Insurance provides a buffer for the total claims exceeding anticipated amounts across all members.

Conclusion

In short, a successful independent self-funded plan requires active oversight of claims data. In turn, this enables tailored strategies that not only enhance benefits but also significantly reduce costs for both the employer and its employees.

Companies who are engaged with their self-funded plan share that it’s a fulfilling endeavor, empowering them to make informed decisions for the well-being of their workforce.

Next, we’ll delve into the specific challenges faced by employee plans and demonstrate how independent self-funding equips employers to address these obstacles effectively, turning common healthcare challenges into a win-win for the employee and the organization.

Stay tuned!