Employers across Michigan, especially small- and mid-sized businesses, might be considering something called self-funding for employees’ health benefits. But what is it and is it necessarily right for you? Let’s take a deeper look. Under a self-funded plan (also called a self-insured plan), the employer takes on the costs and financial risks of providing health care benefits to employees. The employer pays for the claims out-of-pocket directly as they come up, as opposed to paying a pre-determined premium for a fully insured plan. Self-funded plans can be an effective way for an employer to control health care costs. Employers can work with insurance companies like Blue Cross Blue Shield of Michigan to negotiate prices at a discount that many individuals don’t receive – another benefit BCBSM provides as Michigan’s largest insurer. To understand why many small- and mid-sized businesses are opting for self-funded plans, consider these variables:
- Flexibility: One of the main benefits is that you can choose from a menu of self insured plan options to meet the needs of you and your employees. Additionally, you are subject to fewer state regulations.
- Financial security: One of the biggest risks with this kind of plan is that you are responsible for paying all claims—and sometimes those can be much higher than anticipated. It would only take one catastrophic medical bill to cripple a small business. To make sure that doesn’t happen, opting for stop loss insurance limits how much out-of-pocket expense you would have to pay and gives you peace of mind.
- Potential improved cash flow: If you end up spending less on claims than expected, the extra cash is yours to spend.
- Elimination of most premium tax: The premium tax included in the price of a BCBSM stop-loss policy is a much smaller amount than the premium tax included in the price of a fully insured plan. Additionally, you may avoid some Affordable Care Act related taxes and fees by self-funding your plan.
- Different rating mechanisms: Smaller groups that are self insured can take advantage of group demographics that might mean lower overall rates.
If you want to learn other options employers have when offering insurance plans to employees, check out these blogs:
- Are You Ready for 'Play or Pay'? What Small Businesses Need to Know
- Private Exchanges for Health Benefits: A Popular Choice for Employers and Employees Alike
- Charles Schwab + Match.com: Private Exchanges Can Right-Size Health Plans for Employees
What questions do you have about self-funded insurance plans? Photo credit: Ken Teegardin