As employers navigate their obligations to provide health insurance, many medium and large employers are turning to self-funded health plans. Self-funded health plans allow employers to take on the financial burden of all or some health insurance claims that employees file. Here are the benefits that have employers turning to these plans.
More Affordable Health Insurance
Even though employers are responsible for most or all of the health insurance claims that employees file, self-funded health plans often are more affordable than traditional health insurance options.
Self-funded plans can be more affordable because employers are able to determine benefits and negotiate reimbursement rates directly with providers. If a provider doesn't accept an employer's offered reimbursement, the employer can choose to work with another, more affordable, provider in the area.
Additionally, some self-insured health plans are set up so that employees can compare costs and choose more affordable providers. Employees might be incentivized to consider cost by asking them to pay a small part of their health expenses.
Lower Administrative Costs
Another reason why self-funded health plans are often more affordable is that they involve less administrative work.
Traditional health insurance plans are highly regulated, and meeting all of the applicable regulations requires extensive administrative work. Self-funded plans have fewer regulations that they must meet, and therefore the setup and reporting work involved is less.
Most employers that set up a self-funded plan outsource administrative work to a third-party administrator (TPA). TPAs have efficient processes in place to manage payments, bills, and reimbursements.
Variable Risk Mitigation
Any insurance company or employer who provides health insurance must consider what the cost could be if claims exceed expectations. Claims could become quite expensive if a building collapses and all employees sustain major injuries. While this might seem like an unlikely scenario, insurance is intended to prepare for the unlikely and unexpected.
When employers offer traditional health insurance, all of this risk is transferred to the insurance company. The businesses don't take on any of the risks, and thus can't reduce this portion of their chosen health insurance policy.
When employers set up self-funded health plans, they can purchase stop-loss insurance. Stop-loss insurance provides complete coverage if claims exceed a certain threshold. Thus, it would keep expenses affordable even in the collapsed building. If employees file lots of claims, an employer can rely on this coverage to pay the excess ones.
Employers can choose at what level they want stop-loss insurance to provide coverage. This allows employers to adjust their risk exposure to as high or as low as they want. For more information, contact a company like HealthEZ.