Small Groups Are Moving to Self-funded Health Plans
Small Groups Are Moving from Fully Insured to Self-funded Health Plans
Not long ago only large employers opted for self-funded health plans. The conventional wisdom was that only big companies were able to assume the risks and withstand the volatility of paying for their employees health claims out-of- pocket.
The emergence of stop loss insurance plans designed specifically for small groups has enabled these companies to move from fully insured health plans to self-funded plans.
Why small groups are moving to self-funded health plans
Some industry experts predicted that small groups would move towards self-funding in 2013 once most of the provisions of the Affordable Healthcare Act (ACA) went fully into effect. Initially, that didn’t happen in large numbers. But recently, as fully insured premiums continued to rise, more small groups are investigating self-funded health plans in the hopes of cutting their employee healthcare costs.
The following are some of the benefits of self-funding for small employers:
- More flexibility: When purchasing a traditional “fully insured” program from a carrier there, generally, is a limited selection of health plans to choose from. Oftentimes these plans are designed to be “one-size-fits-all,” which doesn’t match the needs of many small groups. Self-funding enables employers to select or design a plan that suits the specific needs of their employee pool. Plans can be adjusted over time when necessary, without requiring the approval of a large carrier. In addition, many self-funded employers are able to negotiate their own rates with providers and networks, rather than using a carrier’s pre-negotiated rates.
- Reduced premiums: Self-funding can enable savings, including state premium taxes and the “risk and retention charges” that insurers typically impose. Moreover, self-funded employers pay their actual expenses, which for the most part they can control, rather than insurance fees. For many employers self- funding is an excellent alternative for controlling healthcare costs.
- Greater control over cash flow: With traditional insurance, employers must pre-pay premiums every month. Self-funding enables employers to retain control over their cash flow, until such time as a claim or expenses are incurred.
- Access to data: Employers that self-fund can see exactly what they’re spending money on. This enables them to make informed decisions and respond to trends when it comes to designing health plans, negotiating rates, and implementing workplace wellness programs. These kinds of adjustments can really make a difference for employers with small workforces.
The barriers to self-funding for small groups
Even though self-funding offers a wealth of benefits, many small employers have concerns about making the switch. The biggest concern is risk. Traditional insurance may be expensive, but its costs are relatively predictable. Not so for self-funded insurance. Nearly half of employers say they are concerned about the financial risks of self-funding and the impact of catastrophic claims. This is where stop loss insurance comes in.
Stop-loss insurance and group captives: eliminating the barriers to self-funding
Companies are understandably concerned that if they move to self-funding, they may be at risk of a huge financial loss in the event of a large individual claim—or worse, a series of large claims.
The solution: stop-loss insurance, by which companies can protect themselves against catastrophic large claims. Stop-loss insurance is available for both individuals (Specific Coverage-protection against one person’s large claims) and Aggregate Coverage-protection against an unexpected number of claims.
For many small employers, another alternative is to join a group in order to purchase stop-loss insurance. These groups are commonly known as “group captives.” The idea is that instead of a single employer having stop-loss insurance, multiple groups own the insurance.
Stop-loss insurance and group captives are an excellent solution for small employers because it enables them to enjoy the benefits of self-funding while limiting their exposure to financial risks.
RMTS, LLC is one of the largest privately owned MGUs in the country. Founded in 1986, RMTs provides Brokers, TPAs and its Insurance Carriers with over 30 years of stop loss medical insurance expertise. Staying in front of an ever evolving marketplace, RMTS is committed to reducing our clients’ costs and managing their risk.