Self-funded health plans are employer sponsored health plans pushed as a low-cost alternative to traditional health insurance. The benefits provided by self-funded plans are comparable. But because the plans are not health insurance by definition, they are more flexible and cost effective. The big question among employers is how much they would pay to replace traditional insurance with self-funded benefits?
Like everything else related to healthcare and employee benefits, there is no way to provide actual numbers here. Self-funded plans are offered at various levels. They differ in the types of coverage they offer and the benefits they provide. Some plans are extremely cheap while others, surprisingly, are nearly as expensive as group health insurance.
How Self-Funded Plans Work
In the simplest possible terms, self-funded health benefits are benefits paid for by a fund set up by the employer. The fund and its associated plan are administered by a third-party, like Nevada’s StarMed. All the medical bills generated by the plan’s members are paid from resources in the fund.
A self-funded plan is also insured, just in case and underestimation of expected costs leaves the plan without enough financial resources to meet is obligations. The cost of the extra insurance is built into the plan so that it is automatically paid for.
Self-funded plans are similar to group health insurance in the sense that employers are expected to contribute financially. Should they choose to not cover the entire cost of their plans, the balance is made up through employee contributions handled as payroll deductions.
Minimum Essential Coverage
The Employment Retirement Income Security Act of 1974 (ERISA) mandates that employer sponsored health plans meet minimal essential coverage (MEC) requirements. Under the law, employers are expected to cover at least half the expense of their plans. This includes self-funded plans. So if the total cost is $200 per employee per month, the employer is expected to pay at least $100.
StarMed offers three plans. The least expensive is the Basic plan. They say they encourage employers to cover the entire cost of this plan for their employees. But even if they choose not to, employees are still expected to foot at least half the bill.
It is worth noting that some self-funded plans calculate employer costs on a monthly basis. Employers are required to update their employee census by a certain date. The plan administrator uses census data to calculate the cost for that month. Therefore, monthly costs can actually go up or down depending on an employer’s situation.
Cost Containment Through Flexibility
A major benefit of self-funded health plans is flexibility. Employers are not left with a one-size-fits-all health plan as they would otherwise have to accept in a group health insurance scenario. Companies like StarMed offer numerous plans designed to fit of variety of needs. But employers technically don’t even have to use third party administrators. They could administer their plans in-house and work out their own deals with local healthcare providers.
As for employees, self-funded health benefits are more than adequate for routine healthcare costs. They may come with higher deductibles, but that is no different than having a high deductible health plan (HDHP). The combination of higher deductibles and greater flexibility offers the kind of cost containment both employers and employees need.
Self-funded health benefits are a low-cost alternative to group health insurance. Both employers and employees pay less. How much less depends on the plan an employer chooses. Though it’s not possible to provide any hard numbers in a blog post, employers can always ask their brokers or plan administrators for a quote.