In recent years, there has been a growing focus on alternative methods of funding healthcare, one of which, gaining particular attention, is the self-funded health plan. Many employees, and even some employers, are oblivious of the exorbitant costs that companies have to shoulder for fully-funded health insurance premiums. As per the KFF 2022 Employer Health Benefits Survey, premiums hover around an average of $7,911 for single coverage and a staggering $22,463 for family coverage per employee. These rates mean that a firm with a mere hundred employees could find itself paying over a million dollars in premiums.
This realization has led to a surge in interest in self-funded health plans. Unlike traditional health insurance, where a company pays a fixed premium to the insurance carrier, self-funded health insurance involves employers directly funding their own health plan. They assume the financial risk for providing healthcare benefits to its employees. The risk is mitigated by purchasing stop-loss insurance, which serves to cap claim liability at a certain level.
There are several benefits to switching to a self-funded healthcare plan. Primarily, companies enjoy a greater flexibility in tailoring their health care plan to suit their needs, and if claim expenses are lower than projected, they retain the savings rather than insurance carriers. Additionally, they are exempt from state insurance laws and taxes, leading to significant potential cost savings. However, there are also risks involved, most notably the unpredictability and potential volatility of claim costs.
With healthcare costs consistently rising, self-funded health plans may provide an avenue for companies to control and potentially reduce their healthcare expenditures. However, it’s crucial for firms considering this model to fully understand the risks involved and seek appropriate advice to ensure they are making an informed decision.