What are the cost differences between self-funded and fully insured plans?
There’s a lot of variability from an employer cost standpoint, but there are some standard differences in terms of the components included in the costs. Self-funded plans do not have risk margins, because you’re paying the claims regardless of the level. Fully insured plans have risk margins built in to the premium to cover claim fluctuations. Self-funded plans also typically have lower administrative costs, and provide greater flexibility around benefit design, which drives premium level. You’re also not subject to state mandates, but to ERISA rules at the federal level.
Depending on the group size, the premium development for fully insured plans is blended in with all of the other businesses in an insurer’s business book, so your premium could be subsidizing the premium of other employers with higher costs. In a self-funded plan, you pay the claims your group incurs.
What steps can you take to make sure the self-funded plan is well managed?
The first step is to select a claims administrator with a successful track record of paying claims accurately. You want to make sure your partner has a strong provider network, both from an access and a cost standpoint. Employees should be able to use broad networks and receive competitive discounts from providers. You also have to focus on the capabilities of an administrator around medical management. The administrator should have robust programs for complex case management and disease management and be able to identify employees that would benefit from these programs. Employees that better manage chronic diseases reduce claim costs for self-funded plans, which reduces overall plan costs. Administrators should also be able to assist employees and ensure that they are receiving the right care, in the right setting, at the right time.
How can you restructure your plan if you decide to switch to a fully funded plan?
This can get challenging. The decision to enter into a self-funded arrangement should not be looked at as a short-term solution. There can be many challenges when transitioning back into a fully ensured environment. When you self-fund, you’re liable for all claims incurred prior to moving back into a fully insured environment. This liability can continue for quite some time, and you’ll have to pay the fully insured premium, plus run out costs when you move back into the fully insured environment. You can substantially increase your monthly costs during this transition period.
There are many elements to consider when evaluating the viability of implementing a self-funded health plan, and it really needs to be part of an overall long-term benefits strategy. Many employers have discovered that implementing a self-funded arrangement has allowed them to take control of their health plan and, more importantly, take control of their health care costs.
James Repp is the vice president of sales for AvMed Health Plans. Reach him at (800) 592-8633 or [email protected].
