Self Funding

Self Funded Group Health

There are several Self Funded Group Health strategies that organizations can implement to improve their Healthcare cost and utilization.  Historically it was mostly larger organizations who used these methods, but that has changed.  Now, there are methods that can help smaller employers utilize these alternative funding strategies to benefit their organizations.  The results include clarity in claims data, behavior based financial results, and greater flexibility in coverage.

Strategies

The Self Funded plan design has been used for many years.  Originally, the term referred to one specific approach.  Now, the term refers to an ever-growing group of strategies that use similar principles.

The basic principle:  The employer calculates their expected health claims and allocates funds to apply to those costs.  Additionally, the employer will purchase a Stop Loss insurance layer to absorb the shock of any catastrophic claims.  Typically, the employer also pays a Third-Party Administrator (TPA) to manage the detailed administrative work of receiving, paying and even auditing of employee healthcare invoices. 

These Self-Funded Strategies Include:

• Partially Self- Funded – The employer allocates funds to pay for healthcare claims up to a certain threshold, and then purchases a Stop-Loss Insurance policy to handle claims that exceed the designated limit.
• Fully Self-Funded – The employer allocates funds to pay for all healthcare claims.  They utilize a Third-Party Administrator (TPA) to manage the day-to-day process of reviewing and paying health claims.  This method is typically only used by the largest employers.
• Level-Funded – The employer funds claims up to a certain amount.  The insurance company provides the administrative services, manages the claim fund, and pays for claims that exceed the claim fund.
• Group Health Captives – A Captive is like a mini insurance company formed by like-minded employers.  Each employer pays the claims for their own group up to a specified limit.  Claims that exceed that limit are paid from resources pooled by the entire group.  The Captive purchases Stop-Loss Insurance to pay for catastrophic claims that exceed the pooled resources of the Captive.

“Un-Bundling”

With traditional group health insurance, the costs for all the services provided by the insurance company within a single policy are bundled into one final premium.  The costs of the individual components are not itemized.  With the Self-Funded model, the costs are “un-bundled” into their respective parts.  This allows for a more a-la-carte method of purchasing the needed pieces.  Rather than all the pieces being provided by the insurance company, it is possible to use multiple different vendors.  The goal is to gain both transparency and savings.

When an employer “un-bundles” these services they must outsource certain duties and take on other aspects of administration themselves. The roles that must be addressed are typically payment of claims, access to networks, pharmacy management, purchasing a stop loss layer of insurance, and general administration.  By removing the administrative cost of an insurance company the employer can potentially gain savings.  In addition, the hidden costs of insurance company profits are greatly reduced or even eliminated.  Lastly, by using a 3rd party to manage claims, greater insight into claim data can be achieved.