PCMI: About Self-Funding

The national average cost of providing employee benefits currently
exceeds 30 percent of payroll. Providing affordable health care
to employees has become a significant challenge

About Self-Funding . . .
There are several good reasons for employers to self-fund their health insurance plans. Self-insurance provides protection against both predictable and unpredictable health care costs. Employers automatically save on direct costs typically included in medical insurance premiums such as overhead, taxes, profits and commissions.

Self-funded employers can also obtain stop-loss insurance to protect against potential catastrophic losses. Stop-loss premiums are typically much lower than medical insurance premiums for a conventional fully insured plan.

In addition to these cost savings, self-insured employers gain other benefits including:

Increased Cash Flow - Employers retain access to capital in the insurance fund that is not required to pay for current claims. The fixed costs of a self-funded plan are also much lower than premiums for a conventional fully insured plan.

Increased Control - Employers have the flexibility to develop their own health care plans. In addition, they have a greater degree of control over the distribution of benefits than with a conventional fully insured plan.

Three Easy Steps to Becoming Self-Funded

1. Select a Third Party Administrator (TPA) - The first step to becoming self-funded is to retain the services of a qualified and experienced third party administrator. TPAs offer a variety of services including access to health care networks, administration and eligibility services, claims processing expertise, benefit plan design, legal and other services that employers typically lack the staff or expertise to provide on their own.

2. Develop a Benefit Plan - Together, the TPA and employer can develop a benefit plan that is designed to meet the health care needs of employees and at the same time is cost-effective for the employer. TPAs can also provide consultation to ensure that benefit plans are in compliance with current regulations such as ERISA and HIPAA.

3. Select a Reinsurance Carrier - Finally, the employer should obtain stop-loss coverage through a reinsurance carrier. Employers can purchase specific stop-loss coverage, which provides protection against catastrophic claims submitted by an individual, as well as aggregate stop-loss insurance, which limits the annual dollar amount for claims submitted against the employer's self-funded plan. Annual deductibles are established for both specific and aggregate stop-loss. Once these deductibles are met, the reinsurance carrier refunds monies to the employer's plan for any future claims submitted within the plan year.