As the issue of healthcare continuous to be a debate, it is important for employers and employees alike to understand the different insurance plans. Citizens and lawmakers are aware of the rising costs of health insurance and the many people who are uninsured or under-insured. There are many different opinions concerning the status of healthcare options in the United States. This blog will focus on the advantages and disadvantages of self funded plans.
First of all what is the definition of a self funded insurance plan? In simple terms, it is a self insurance arrangement whereby an employer provides health or disability benefits to employees with its own funds. This is different from fully insured plans where the employer contracts an insurance company to cover the employees and dependents. In self-funded health care, the employer assumes the direct risk for payment of the claims for benefits. The terms of eligibility and coverage are set forth in a plan document which includes provisions similar to those found in a typical group health insurance policy. Unless exempted, such plans create rights and obligations under the Employee Retirement Income Security Act of 1974.
Costs – Many organizations are switching to a self funded plan to reduce the costs associated with insuring employees. According to an article published by physicians care; the self funding option has costs benefits because the costs are fixed. This is different from a fully insured plan that has fluctuating premiums.
Information Management – Both employees and employers have access to healthcare information. Monthly reports are accessible for anyone who is a part of the plan. Participants are always made aware of their status with the plan
Better Financial Control – Under a self funded approach there is a greater amount of financial control because employers have the ability to fund claims as they come due instead of having to fund them in advance. This is important because it allows the company to invest the money instead of the insurance companies using advanced premiums for their own investments. In addition, companies that work with organizations in their self-funding efforts are able to supply reports to the organizations so that they can see where all the money goes.
The primary disadvantage associated with self funded plans is the risks that are assumed and not having the appropriate type of risk management. For this reason organizations that adopt this type of plan should seek the guidance of professionals in the field; in doing so the disadvantage can be avoided. An example of a professional to assist you would be an employee benefit consultant.
Factors Organizations Should be Aware of
Prior to implementing such a plan organizations should have an understanding of the risks associated with self funding. In addition companies should carefully research the types of self-funded plans that are available and choose the correct one based on the needs of employees and the costs associated with meeting those needs.
We hope this blog helped you learn a little more about the pros and cons of self funded insurance plans. The most important part of choosing a plan is education. The more you are educated on the pros and cons the easier it will be to choose a perfect plan for your company.