If you employ a healthy workforce, your company has the chance to see lower health care costs thanks to self-funding and stop-loss insurance options. Previously only for larger employers, self-insurance now includes financial levers (called level-funding or balanced-funding plans) that help smaller companies translate low heath-claim risks into low health insurance costs.
Self-Funded Plans Grow in Popularity
Self-insurance plans were once reserved for the biggest companies, which were best suited to afford and manage the administrative responsibilities that come with self-insurance. In the traditional self-funding model, the employer paid all health care costs directly as the claims came in. Generally, these traditional plans included a stop-loss contingency in case one employee has a sudden and dramatic increase in care costs because of an expensive illness or accident.
Lately, however, companies of all sizes are joining the self-insured trend, according to Kaiser Family Foundation data. It’s more common now to see employers banding together to create a larger pool of employees for a self-insured health plan. For example, a chamber of commerce will often offer all its members a self-funded plan. It’s important to note, though, that not all employers will meet the criteria to gain access to these insurance options. Your employees will likely first go through a health evaluation, and if the risk of health claims is low enough, your entire workforce will become part of a plan that services a group of companies.
Managing the Risk
Stop-loss insurance is an integral part of self-insurance. Without it, the employer or employee group is fully liable for catastrophic, or high dollar, claims. One person could drive up health costs enough to strain the budget of the employer paying directly for the health claims. Stop-loss insurance acts as a means of putting a cap on that risk, ensuring you won’t go bankrupt from paying the claims for an unexpected health event. The general trend with stop-loss premium costs is the lower the cap, the higher the premium.
Balanced Funding Allows for Budgeting
Balanced funding, or level-funded, plans are a form of self-insurance specifically created for smaller employers. With the traditional self-funding plan, the employer couldn’t budget consistently — except for the stop-loss limit, there was no way for employers to predict the cost of health care each month. For small employers working with tight budgets, self-funding was too financially uncertain.
Level funding solves those budgetary concerns. With a set dollar amount each month (based on the number of employees), level-funding plans keep an ongoing tab of credits and debits for health care bills. If claims are less than the amount, a credit is issued at the end of the year, and if claims go over the amount, the stop-loss policy is implemented. Level funding therefore offers the risk prevention from stop-loss coverage while providing a stable, consistent payment throughout the year.
Level-funded plans, along with stop-loss insurance, offer a way for you to take control of health options and cut down on costs. Whether solely through your business or as part of a group of employers that implement a self-funded plan (with level funding, if desired), self-insurance is a viable business option that provides flexibility, potential savings and a low level of risk.
Written by Dylan Murray | April 7, 2015. Published at Anthem’s “Making Healthcare Reform Work” blog.
