Blog > Is it Better to Self Fund Employee Health Benefits?
Employee health bills are fluctuating because of uncertainty related to the 2010 healthcare reform bill. Companies are trying to contain the damage by paying employee health claims out of pocket. Joseph Berardo, Jr., CEO of MagnaCare, said that the total savings from doing this could be between 10% and 20%. MagnaCare administers self-funded health insurance plans to municipalities and businesses in New Jersey and New York.
When employers debate whether to adopt a self-funding plan, the possibility of lower monthly healthcare costs should be considered in comparison with the risk of covering employees’ healthcare bills. There is no concrete answer for this issue that is right for all situations. The best answer depends on the demographics of employee bases and the company’s financial situation. The risk of an employee having an accident or developing a serious illness is a major concern.
Although nearly 93% of companies with more than 5,000 workers have self-funded plans, many smaller companies don’t. According to a recent survey conducted by Kaiser Family Foundation, the reason for reluctance among smaller companies is the possibility of being hit with a large employee healthcare bill and not having enough cash to pay it. The survey found that only 16% of companies with under 200 workers had self-funded plans. However, experts in this industry expect interest in these plans to rise in the future.
From the data gathered, it’s clear that there are some benefits to self-funded plans. However, there are more benefits than those that are apparent on the surface.
This federal law exempts self-funded plans from the state’s regulations. This includes reserve requirements, insurance laws, premium taxes, mandated benefits and consumer protection regulations. Employers must still abide by rules from the following entities:
Although there are many benefits to enjoy by implementing self-funded plans, there are also potential downfalls. It’s important to consider these.
It may be necessary to keep a self-funded plan for a minimum of three to five years in order to fully enjoy the benefits. This may be extremely difficult for some companies during economic hardship.
Be sure to weigh the benefits and disadvantages of self-funded plans before making any changes. If the task of determining how profitable such a change would be is too difficult, consider hiring the services of a professional analyst.< Back to posts