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About Self Funding

In 1974, the Employee Retirement Income Security Act (ERISA) was passed allowing employers an alternate means of funding their medical and other employee benefit plans. Self-Funding provides an alternative to the high cost of fully insured benefits plans, flexibility of plan design and the potential for savings.

A self funded plan is divided into two distinct segments:

Fixed costs - Administrative fees, stop loss premiums, network costs and claims management costs.

Claims funding ­ Funding for actual claims. These funds are held in the plan's claims account until needed.

The claims account works in conjunction with stop-loss insurance protection, which limits the plan's liability against large claims. Stop-loss coverage falls into two categories: specific and aggregate. Specific stop-loss coverage limits the employers liability on any individual covered under the plan for the plan year. Aggregate stop-loss coverage limits the annual claims liability on all members for the plan for amounts under the specific stop-loss coverage.

Advantages of Self Funding

A self-funded (or self-insured) health plan is one in which the employer assumes some or all of the risk for providing health care benefits to its employees. The employer takes control of the assets of the plan, invests them to its advantage, and eliminates the insurance company charges. The employer becomes the fiduciary. The advantages of self funding are:

1. Self-funding provides the potential for savings if an employer has good claims experience. In cases where claims exceed expectations, the employers liability is capped under the stop-loss protection built into the plan.

2. Self-funding provides employers the ability to customize their plan designs to meet specific needs of the group. This differs from traditional, fully-insured programs where employers have no flexibility with the plan design benefits.

3. By using a self-funded plan in conjunction with Health Partners, your company maximizes its potential for overall savings by accessing healthcare at competitive prices.

4.  Self-funding provides the ability to add Disease Management programs and creative Pharmacy programs designed to reduce costs.

5. An employer doesn't pay state premium taxes, which usually range form 2% to 3% of the monthly insurance premium.

6. Self-funding will show a large first-year savings through the lack of premium taxes, various insurance company charges, and first year claim lag. This excess reserve can be used in future years to offset health plan increases.

7. The employer retains control over the health plan reserves, enabling maximization of interest income. Self-funding offers cash flow advantages not found in fully insured arrangements. Also, an employer only pays for the claims incurred during the contract year. The coverage is not pre-paid, thereby again, improving cash flow.

 
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