Self-Funding FAQs

Is self-funding for everyone?

No. Companies that best suited for self-funding have:

  • 100 or more employees needing coverage
  • No plans to significantly reduce staff levels
  • A stable financial background
  • Consistent or relatively low claims history
What should I consider?

To determine if self-funding is right for your group you should review the following information:

  • Perform a risk and cash flow analysis
  • Examine the demographics of your employees and covered dependents
  • Review claim history
  • Consider the general age and fitness levels of your employees
  • Review your utilization rates for the past 3 to 5 years
  • Be realistic about your company’s cash flow
Why should I self-fund my health plan?
  • Self-funding will show a large first-year savings through the lack of premium taxes and various insurance company charges.
  • Employers can save considerable money through new plan designs that take advantage of the most up-to-date cost containment strategies.
  • Self-funding does not affect the plan from the employees’ standpoint. There does not have to be any noticeable change in the plan unless the employer so wishes.
  • The employer receives increased interest from his reserves, or follows a “pay as you go” approach. .
  • Every aspect of plan administration becomes subject to competitive market pricing, thereby saving money on such items as claims administration, printing of Summary Plan Description, etc.
  • Excess-risk coverage is available to insure the employer against unforeseen adverse claims experience. Contact our firm for more information on how to self-fund your health care plans.
What are the advantages of using a TPA?

TPA’s primary focus is in administration of benefit plans. They offer the most flexibility and will tailor their service levels to meet each client’s specific needs, no matter how small the client. Some of these services include:

  • Plan design consulting
  • Contracting with stop-loss carriers
  • Online enrollment services
  • Claims administration
  • Contracting with utilization review/managed care companies
  • Filing of government forms – 5500 series
  • Writing and printing of SPD booklets and plan documents
  • Employee communication programs
  • COBRA and HIPAA Compliance
  • Customized client reporting packages
Who is insured?

The difference between stop loss insurance and conventional employee benefit insurance is that the stop loss insures only the employer. Stop loss insurance does not insure employees.

What are the risks of self-funding?

A plan which has low utilization has the potential for savings. However, a plan which as high utilization could experience a financial risk greater than if they were fully insured. This is the reason to perform a financial analysis and to consult with your benefit specialist to ensure that you have set the appropriate levels of risk for your plan.

Are self-funded plans subject to any laws?

Self-Funded plans are subject to federal regulations; include the Employee Retirement Income Security Act (ERISA), which sets standards for employee benefit plans. ERISA exempts employers who self-insure from most state regulations, taxation benefit mandates and control.

Self-Funded plans must also comply with the privacy requirements of the Health Insurance Portability and Accountability Act (HIPAA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act, the Civil Rights Act, and various budget reconciliation acts such as Tax Equity and Fiscal Responsibility (TEFRA), Deficit Reduction Act (DEFRA), and Economic Recovery Tax Act (ERTA). Certain federal regulations and mandates apply to both fully insured plans, such as coverage for pregnancy, newborns and, in certain instances, breast cancer. Meeting these regulatory requirements is a reason most companies hire an Administrative Service Organization (ASO) or a Third Party Administrator (TPA) to help them design and administer their plan.

Do I have to redesign my existing health plan?

No. This decision is entirely up to the employer. For those employers that are comfortable with their current benefits and coverage levels or who would like to create as little disruption as possible, may keep the same plan design. Other employers may choose to redesign the plan to add or reduce benefits. Employers should review their group’s utilization with their benefit consultant to determine the most appropriate changes that will have the best financial impact for their group.

What is the role of the employer’s plan document?

The employer’s plan document defines the benefits offered to the employees and is critical in determining liability under the Stop-Loss contract. Because the employer has the flexibility to customize the design of the plan to meet their needs, there may be items in the plan document that are not included in the Stop-Loss contract. The covered portions of the plan document must be approved by the underwriter in order to be included in the Stop-Loss coverage. Changes in the plan document, after its initial approval, must be approved before their inclusion in the Stop-Loss contract.

How is loss defined?

Expenses are determined to be eligible for reimbursement based upon three criteria:

  1. The expenses must be eligible as a covered benefit under the Employer’s Benefit Plan as approved; and
  2. The loss must have been incurred and paid within the coverage period as defined by the Stop-Loss contract; and
  3. The loss must be covered under the loss definition in the Stop-Loss Policy.
What about payroll deductions?

Any payments made by employees for their coverage are still handled through the employer’s payroll department. However, instead of being sent to an insurance company for premiums, the contributions are held by the employer until such time as claims become due and payable; of if being used as reserves; put in a tax-free trust that is controlled by the employer.


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