Self-Funding Health Benefits Can Help Plan Sponsors Control Costs
July 8, 2009
A self-funded health insurance plan shifts insurance risk to the plan sponsor rather than to a commercial insurance carrier or other licensed risk-bearing insurance organization. The vast majority of all claims are a direct liability of the plan sponsor and are paid out of plan assets. While some large plans self-administer their self-funded plans, most find it necessary to contract with a third party for assistance in claims adjudication and payments. The general underwriting rule is that it becomes advantageous to self-fund if a plan has about 1,000 participants.
Following are areas in which fully-insured and self-funded health plans differ:
- Cash flow
- Financial protection
- Retention/ASO fees
- Incurred but not reported (IBNR) reserves
- Tax
- Plan design control
- Fiduciary liability
Most plan sponsors make the change to self-funding because they become disappointed with their fully-insured plan. Many complain that fully-insured plan designs remain relatively inflexible in terms of mandated benefits, effective cost-containment programs are not always available, and population-specific claim detail is not available to manage risks effectively. In addition, a plan may be unable to create a uniform strategy for a national program with customized solutions, and fully-insured plans tend to consume dollars that could be better spent elsewhere.
Read "Self-Funding Health Benefits Can Help Plan Sponsors Control Costs," an article by Dean C. Hatfield and Andrew D. Sherman that appeared in the August 2009 Benefits & Compensation Digest.