Intro to Self Funding

What is Self Funding?

What is Self-Funding

Self-funding is an alternative financial strategy to costly traditional benefits insurance. With a self-funding strategy, the employer, not an insurance company, assumes direct responsibility for providing health care benefits to his/her employees, while also managing the assets of the plan. While a company can choose to administer their plan completely by themselves, most typically work with a third party administrator (TPA). The TPA helps to set up a benefits plan design that best meets the unique needs of a company’s workforce, as well as pay eligible claims and maintain, track and generate health records and reports.

Why do companies choose to self-fund their benefits?

Perhaps the greatest self-funding advantage is improved cash flow for the employer. Employers set aside funds in an interest-bearing account until they’re needed to pay a claim. Because a self-funded strategy enables employers to pay for each claim as it’s incurred rather than paying a fixed premium to a traditional carrier, the employer has full use of working capital and interest earnings of any monies in the fund throughout the year. The TPA works with the company to help it determine how much to set aside to cover predictable and unpredictable claims. By self-funding predictable claims, the end result is a direct savings of medical insurance premium. Employers purchase stop-loss insurance to cover any unpredictable claims, such as catastrophic illnesses or injuries.

What are main advantages of self-funding

A properly designed and administered self-funded plan can realize as much as 30 percent savings over a traditional-style plan, while mirroring or enhancing the traditional plan’s benefit design.

Other self-funding advantages include:

Fully-Insured vs. Self-Funded Plan Cost Comparison