4 myths surrounding self-funded health plans
Self-funded health plans aren’t only for large companies, and they don’t have to be overly expensive. Learn about other self-funding misconceptions.
Sixty-five percent of covered employees are in a self-funded plan — a percentage that has steadily grown over the last decade.1 Brokers are taking note: Nearly two-thirds of brokers expect a moderate or drastic increase in their self-funded business in the coming year.2
Even still, sometimes self-funded health plans get a bad rap. Since employers take on more of the financial risk of providing health benefits to their employees, they’re also footing the bill if employees’ claims are higher than expected.
But this financial risk can also yield positive outcomes: When employee claims are lower than anticipated, employers may actually save money. With a self-funded health plan, employers also have more flexibility in designing benefits to meet the unique needs of their workforce, which may help contribute to better outcomes.
Myth #1: Self-funded health plans are only for large companies
It’s true that many large businesses choose a self-funded model. In fact, 82% of covered employees within large firms are in self-funded plans, according to a recent Kaiser Family Foundation report.1 It makes sense: With a sizeable workforce, a large business can diffuse the risk of costly claims across its many employees and their dependents.
But there’s a place for smaller businesses in the self-funded model as well. Since employers can tailor their benefits to their workforce size and unique needs, this model may actually lend itself to offering benefits that can best accommodate their employees. For instance, with self-funded plans, employers have access to their plan data, which may include everything from claims information to utilization patterns. This data enables employers to make informed decisions about how to better engage their employees in making decisions that may lead to lower costs and better health outcomes.
Myth #2: Self-funded health plans are too risky
Employers take on some financial risk with a self-funded health plan. Although employers can make budget considerations based on their workforce’s age, region and dependents — and they should absolutely do so — there’s no way to completely forecast employee medical claims. This uncertainty can leave room for more claims and higher costs than anticipated, but it could also mean fewer claims and lower costs than expected.
With self-funded plans, employers only pay for what their employees use. So, with the proper education, they can help their employees make better, lower-cost decisions, such as visiting an urgent care center rather than the emergency room for non-emergent situations. Stop loss coverage, which provides protection against catastrophic medical claims, can also help employers manage the financial uncertainty of a self-funded health plan.
Myth #3: Self-funded health plans are too much work
To be honest, self-funded health plans do require more of a lift on the part of employers, especially when comparing self-funded to fully insured plans. They’ll have to shoulder the health plan’s administrative burden, which can be significant (think: regulatory compliance, claims processing and more), but that’s where health plan representatives, brokers and consultants can help.
Employers may also have to lean a little bit more on their health plan representative for help with everything from tailoring programs to meet their workforce’s unique needs to making pivots based on plan data. At the end of the day, that collaboration between an employer, their health plan representative and broker or consultant can pay off. Working together to find ways to better meet the unique needs of an employer’s group population, who may for instance have high rates of diabetes or have dependents in need of behavioral health support, may ultimately lead to healthier, more productive and loyal employees.3
Myth #4: Self-funded health plans aren’t cost-effective
Employers may ask themselves,"Is self-funded insurance good for employees?" And the answer is oftentimes "yes," especially as it relates to costs.
Having the flexibility to design a benefits package that meets the unique needs of your workforce may lead to better outcomes for both employees and an employer’s pocketbook. But this can be dependent on the employer and health care representative working together to customize their offerings based on their employee demographics and the employer’s ability to keep employees engaged in making good choices concerning their health.
Again, if employee claims are lower than expected, an employer may even be able to save money.
When a self-funded health plan may not be the best option for an employer
All that said, self-funded health plans may not be for everyone. If a smaller employer has a workforce with higher health risks or a history of expensive health care claims, a self-funded health plan may lead to steeper costs. In that case, a fully insured plan — or the happy medium of a level funded plan — may be worth exploring.
Talk with your broker, consultant or UnitedHealthcare representative to discuss whether a self-funded health plan makes sense for you and your employees.