January 2024

Traditional fully insured health plans have long been the standard, but an increasing number of employers are turning to self-funded health plans as a strategic solution to take greater control of their health care spend.

These days we’re all dealing with the rising cost of, well, everything, and health care is no exception. In 2023, the cost of employer-sponsored plans jumped 7%, the fastest rise since 2011 according to KFF’s annual Employer Health Benefits Survey. Employees also feel the impacts, with 63% reporting concerns over health care affordability. And with 2024 employee health benefit costs expected to continue to rise (7%, according to PwC), the current trend is untenable for all parties. Employers face an ongoing challenge to provide comprehensive health care benefits for employees while managing costs. Traditional fully insured health plans have long been the standard, but an increasing number of employers are turning to self-funded health plans as a strategic solution to take greater control of their health care spend. Self-funding your health plan can have many advantages, but there are factors to consider when making a change to a self-insured arrangement. Let us help break it down for you.

Understanding Self-Funded Health Plans (Self-Funded vs. Fully Insured):

Unlike traditional fully insured plans, where you pay a fixed premium to an insurance carrier, in self-funded health plans employers pay directly for claims incurred by employees and their dependents as they are incurred. While monthly payments are no longer fixed, you pay based on actual utilization.  

Advantages of Self-Funded Insurance Plans

• Tailored Benefit Design: One of the key advantages of self-funded health plans is the ability  to customize benefit designs to meet the specific needs of your workforce and align benefit plans across state lines (for multi-state employers). This flexibility allows you to offer a range of benefits that align with the health and wellness priorities of your employees. By tailoring benefit packages, you can ensure that your employees are receiving the most relevant benefits and impactful health care coverage.
• Cost Transparency and Control: Self-insured health plans should provide employers with a clear and transparent view of their health care expenditures. With detailed data on claims, utilization, and costs, a benefit plan advisor (typically a TPA) should identify trends, pinpoint areas of high spending, and implement targeted cost containment strategies to optimize plan management. This level of transparency empowers you to make informed decisions about your health benefit offerings, leading to better cost control.
• Risk Mitigation and Stop-Loss Insurance: While self-funded health plans involve assuming a level of financial risk, you can mitigate this risk through the purchase of stop-loss insurance. Stop-loss insurance protects your business from catastrophic claims that exceed a predetermined threshold, providing a safety net to ensure financial stability and protect against both forecasted and unforeseen high-cost claims.
• Cash Flow Benefits: Self-funded health plans can offer improved cash flow management. Instead of paying fixed premiums, you only incur costs as claims are processed. This dynamic payment structure can contribute to improved cash flow and liquidity, allowing businesses to build reserves, allocate resources strategically and invest in other areas of their operations.
• Employee Engagement and Wellness: Self-funded health plans encourage a more active approach to employee engagement and wellness. With the ability to tailor benefit programs, you can implement wellness initiatives that address the specific health needs of your population. By promoting a culture of health and well-being, you can potentially reduce overall health care costs by preventing and managing chronic conditions more effectively – while also improving presenteeism and productivity.

Navigating the Future with Self-Funding

In the ever-evolving world of employee benefits, self-funded health plans offer a compelling solution for organizations looking to manage their health care spending more effectively. The flexibility, transparency, and control provided by self-funded models empower you to customize benefit offerings, control costs, and strategically invest in the well-being of your workforce. As businesses seek innovative approaches to navigate the ever-rising cost of employee benefits, self-funding emerges as a valuable tool for those aiming to optimize both financial and employee health outcomes.

Nova uses a flexible, holistic approach to managing self-funded health plan performance for each of our clients. An additional resource regarding self-funding your health plan is available here.