There are a number of misconceptions about self-funded health plans. Let’s set the record straight. Here are five truths you should know about self-funded plans:
Medical plan costs are projected to rise an average of 5.6% per employee in 2023. This is a sharp increase from the 4.4% projected for 2022. Many employers are already experiencing strain as their health insurance premium costs skyrocket. As a result, more and more plan sponsors are seeing the financial advantages of switching to self-funding for employee healthcare benefits. But some are still hesitant to make the switch due to common misconceptions.
As a TPA with 30 years of experience specializing in self-funded benefits plans, we’re here to clear up the most common misunderstandings about self-funded plans, (also known as self-insured plans), so you can have the facts when deciding whether or not to make the switch.
Preconception #1: Self-funded plans aren’t cost-effective.
Not true. Not only are self-funded plans affordable — they save plan sponsors money.
Many employers are under the impression that with self-funded coverage, they must produce large sums of money on the spot to cover their employees’ claims whenever they arise. In actuality, plan sponsors pay a set sum each month so that they already have money saved for when it comes time to pay a claim. This sum takes workforce size and employee needs into account, making it a flexible monthly rate that is affordable and realistic in terms of projected medical costs. Self-funded plans reduce a plan sponsor’s overall costs, immediately saving them 2 to 3% on the cost of their plan, with the potential to save more, a lot more.
Furthermore, with a self-funded plan, companies only pay for medical costs their employees incur. So, if a business’ healthcare bills come in under their premium payments, that’s money returned at the end of the plan year.
This is a huge difference between self-funded and fully-funded (also known as fully-insured) insurance plans. With a fully-funded plan, even if a company’s healthcare costs come in under budget, their insurance company keeps the entire premium — a fact that you are probably already painfully aware of. But with self-funded coverage, companies have the potential to get money back at the end of the year, helping them score major savings.
Preconception #2: Self-funded insurance plans are labor-intensive.
False. A quality TPA takes care of all administration for you.
Plan sponsors often think that when self-funding employees’ coverage, they’ll be tasked with more administrative duties. This is simply not true when you work with a quality Third Party Administrator (TPA). A TPA creates a company’s plan and then handles all administrative aspects, including enrollment, compliance, and ongoing correspondence with employees when they have questions about their benefits. Because of the wide scope of what they cover, partnering with a TPA dramatically cuts in-house administrative workload and costs.
Preconception #3: Self-funded health plans only make sense for large companies.
Nope. Medium-size businesses can reap the rewards of self-funded coverage, too.
All the aforementioned money and time-saving benefits of self-funded coverage apply to mid-sized companies at comparable risk levels since plans are tailored to a company’s workforce. With a custom plan, cost is predictable. Plus, mid-sized companies can instantly cut the operational costs of a self-funded plan by working with a TPA.
Preconception #4: Self-funded insurance plans are limited in the scope of their offerings and provide little flexibility.
Wrong. With an experienced TPA as your partner, self-funded plans can be flexible and fully customized.
If you’re under the impression that self-funded plans have limited offerings — which could lead to poor employee satisfaction and problems with retention – you’ve been misled. In actuality, a TPA will take a look at a business’ needs and map out a custom plan that’s both targeted to the plan sponsor’s employee base and cost-effective. For instance, if a company has many employees with young children, the plan can prioritize family care. Similarly, self-funded plans can affordably cover behavioral health needs and complex or chronic conditions. And self-insured plans can stay flexible as a plan sponsor’s workforce evolves.
MagnaCare’s innovative offerings, such as ancillary benefits coverage and a case management program for individuals with more complex healthcare needs, are built to ensure plan sponsor’s employees get the care they need at minimal cost to you.
Preconception #5: Self-funded insurance plans are simply too much of a risk.
Incorrect. The financial risk of a self-insured plan is comparable to the risk of fully-insured coverage. Plus, there are self-insured safeguards to mitigate risk.
By its nature, all insurance reflects risk. Yes, there is a marginal risk in self-funding employee health coverage: there is a chance that at the end of the year, a client may end up owing more money than they planned due to unexpected medical events. However, consider the opportunity risk of a fully-insured insurance policy: even though the plan sponsor knows their set cost for the year upfront, they lose out on money if their medical costs come in well below the cost of their premium.
There are also self-funded features to mitigate cost-exposure risk if an employee (or one of their family members) has a catastrophic medical event or diagnosis. A self-funded plan with a stop-loss policy protects a plan sponsor for being on the hook for unexpectedly and extraordinarily large medical bills.
Now that you know the truth about self-funded plans
As a full-service, nationwide TPA with 30+ years’ experience, MagnaCare is the expert in high-quality, low-cost, innovative self-funded solutions. We work with plan sponsors to create custom self-insured health plans tailored to their budget and the unique needs of their workforce. Then, we handle all the administration — from enrollment to eligibility to EOBs. MagnaCare even helps navigate employees to lower-cost, higher-quality providers, so they can get the quality care they need at a lower claim rate. Plus, our award-winning intuitive platform and mobile app keep plan sponsors and their employees fully in the loop. Contact us to learn more facts and how we can assist you.
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