Self Funding Defined

Self-Funding is an alternative method of providing employee health care benefits in a way that offers you greater opportunities to control your costs. This method also allows you to make your cash flow work to your advantage, rather than that of an insurance company or other provider of benefits. Self-Funding could result in substantial savings for employers with a history of favorable claims experience or, at least, predictable loss experience.

Comparing the Costs of Insured and Self-Funded Health Plans

In an insured health plan, your premium dollars are used to provide protection against risk, but some of the premium also pays for projected medical inflation, premium taxes, risk charges, insurance company operating costs, reserves, and a margin for profit. If your actual claims in a given year are higher than estimated, the deficit is added to the estimate for the next year. That means your rate is increased to cover not only the higher level of anticipated claims, but the deficit from the previous year as well. Excess premium collected by an insurance company is often reimbursed to the employer, however, interest may not be credited on the excess premium payments.

Groups have few options in responding to these increasing benefit costs. Short of cutting back or eliminating benefits, which may not be practical or desirable, the group can either reduce the insurance company's retention or change the method of plan funding. Self-Funding can reduce costs in both of these areas.

Stop-loss (reinsurance) protection should be considered to protect you from the danger of financial burden caused by excessive claims or unexpected claims fluctuation. There are two distinct forms of reinsurance available: Aggregate Reinsurance provides coverage with regard to your entire group's annual claims, while Specific Reinsurance is designed to protect you from catastrophic claims of any one covered individual. A combination of the two forms of reinsurance coverages can assist you in maintaining control of claim costs, even in situations involving severe or frequent claims.

As your Third-Party Administrator (TPA), Pro-Claim will help you manage your Self-Funded Plan by providing:

  • Assistance in establishing your funding vehicle.
  • Plan Document and the wording for your Plan Booklet.
  • All necessary supplies such as claim forms, enrollment cards, and identification cards.
  • Well-trained claims examiners and client service representatives assigned specifically to your group, offering you a close working relationship with an examiner who is familiar with your plan and administrative personnel.
  • Close monitoring of claims to uncover areas of misuse, abuse, and over utilization of the plan within a given department or type of coverage.
  • Counseling and guidance for funding levels and cost estimates of any proposed plan changes.
  • Assistance to determine equitable rate structures for plan participants.
  • Allocation of plan costs by department, geographic location, and any other criteria you select.
  • Advice regarding the cost effect of current and proposed government regulations.

Management Reporting

In order to keep you informed on claims payment activity and history, Pro-Claim provides you with a variety of helpful reports, including an ongoing and detailed record of all checks written, a monthly summary of claim activity, quarterly reports on covered employees and claims by employee, and annual statistical reports generating information such as claims by dollar size, department or diagnosis.

Advantages of Partially Self-Funding

  • You are not required to make regular monthly "premium payments" or advance reserve deposits, as monies can be released as claims become payable.
  • You can acquire income producing investment instruments with what otherwise would have been "premium dollars."
  • If you are currently fully insured, a Self-Funded Plan will create considerable savings in the first few months as the majority of claims paid in that period will be the responsibility of your prior plan.
  • You will not pre-pay for estimated medical cost inflation. You will only pay for actual inflation.
  • You will control your own reserve fund and the interest that will accumulate.
  • You will have the ability to negotiate extended or reduced payment terms with the providers.
  • A portion of the premium tax payable under a fully insured arrangement is retained under a Self-Funded Plan.
  • Your plan can be specifically designed to encourage your employees to use your facilities (if you are a health care institution) or in-patient and out-patient facilities within your community.
  • Cost containment and cost sharing features can be incorporated into your plan and easily monitored.