Should Your Company Choose Self-Funded Insurance?
When it comes to choosing insurance for your company, you generally have two choices: fully funded and self-funded plans. The former means paying a company each month to manage and cover your claims. The latter means covering your own claims, usually with the help of an administrator. Although you may think a self-funded system exposes you to excessive risk, it can actually offer you a number of advantages.
Benefit Customization
Because you have control over the plan and know exactly what type of claims are being filed, you can better manage the benefits of your plan. If you see your employees need stronger benefits in one area, you can offer those benefits. If your employee pool is collectively suffering from obesity or high blood pressure, you can tailor preventative programs aimed at making your employees healthier and, as a result, lowering the number of claims filed against the policy. You can also offer additional incentives for your employees to get healthier, such as free gym memberships and healthy food discounts. Self-funding allows you flexibility in offering your employees coverage tailored for their needs.
Cost
The reason even smaller business are shifting to self-insured policies is cost. Since your company is only paying for actual claims, you can save thousands of dollars each year in expenses. Of course, fully-funded plans cost more because the insurance company is assuming the risk. In some years, you end up paying a great deal of money even though your employees are quite healthy. If you are self-funded, you save a huge amount of money in the years your employees have few big claims. Of course, if you are a small business and just one employee has a serious illness, you can end up paying hundreds of thousands of dollars in claims for that one person. Fortunately, you can buy insurance that limits your risk, establishing a limit on how much money you have to pay toward claims. The cost of your self-funded insurance will most likely rise in the next year, however. Self-funded insurance is risky but also carries big rewards. For some companies, it is the best way to offer employees quality health care.
Choosing between self and fully funded insurance requires a true risk assessment. If your company can afford to absorb serious losses every now and then, the lower yearly cost of the policies may well be worth it. If you are a smaller company, you need to consult with your financial advisor to see if the risk is worth the rewards.
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