Self-funded health plans are becoming an increasingly popular way to provide health benefits to your employees. Self-funded health plans are an alternative to working with a traditional health insurance provider for companies that want to be able to self-manage their employees care. Most often, rather than hiring additional staff to manage the day-to-day workings of the plan, companies will contract with a plan administrator, who will actually work with employees and providers to provide care and make sure claims are evaluated and paid properly and timely. While a self-funded health plan isn’t the best option for every company, here’s how a self-funded health plan can work for you.
What Is Self-funding?
An employer has a self-funded (or self-insured) group health plan if the employer assumes the financial risk associated with providing health care benefits to its employees.
Rather than paying fixed premiums to an insurance company—which, in turn, assumes the financial risk—your company pays for medical claims out of pocket as they are incurred.
Why Do Employers Choose Self-funding?
An employer may choose to offer a self-funded health plan for a number of reasons.
- Instead of trying to purchase a one-size-fits-all health plan, self-funded plans can be customized to fit the needs of an employer’s workforce.
- Employers with self-funded plans control the health plan cash reserves, allowing them to maximize interest income (insurance companies generate interest income for themselves by investing premium dollars).
- Self-funded coverage is not prepaid, as it is when the employer pays premiums to an insurance company. Therefore, companies that self-fund their health plans can have improved cash flow.
- Self-funded plans are not subject to conflicting state health insurance regulations and benefits mandates. Instead, these plans are regulated by federal law.
- Employers with self-funded plans are not subject to state health insurance premium taxes.
- Employers can contract with the providers or a particular provider network that will best meet the needs of its employees.
How Self-funded Benefits Work
Imagine an employee or family member makes an appointment with their doctor because they are sick. Just as with a traditional medical plan, when they arrive at the doctor’s office, they are asked to provide their insurance card to their physician’s office personnel. The insurance card tells the doctor’s office what type of health plan they have and how it is administered, including to whom the claim should be sent.
After they have seen the doctor, a claim for payment for the office visit is generated. Someone in the doctor’s office prepares the claim and submits it to the administrator—the entity that will determine how the claim will be paid—listed on the insurance card provided. Some employers administer employee health care claims in-house, while others use a third-party administrator (TPA).
The administrator then adjudicates the claim. Adjudication is the process of paying health care claims according to the health plan’s contract. The health plan’s administrator will determine how the health benefits work and what payment is required for the doctor. The plan may require the employee to pay coinsurance or a deductible before the health plan pays its portion of the bill. Or, the doctor may participate in a Preferred Provider Organization (PPO) or another type of managed care plan and therefore will charge discounted fees to the plan. These and other factors determine how much of the claim the plan will pay, how much the employee will pay, and how much the doctor will eventually receive.
If it sounds very much like a traditional health insurance plan, for the employees, the process will seem much the same.
Once any payment issues are resolved and it is determined that the plan with cover the expense, the plan administrator contacts the employer for approval of the claim’s payment (and any other current claims). The employer approves payment of the claim.
After receiving payment approval from the employer, the administrator requests payment from the employer’s bank. The bank will wire the appropriate funds to the administrator, who will then send payment to the physician. The claim is paid.
This payment process generally takes two to four weeks., In this way, a self-funded health plan operates similar to a traditional health insurance plan.
The Explanation of Benefits
After the employee’s physician visit, they will receive an informational statement from the health plan administrator. This is called the explanation of benefits, or EOB. An EOB summarizes the claim, the payments the employee must make, the payments the health plan (employer) must make, and any other payment information regarding the doctor visit. This statement is not a bill or request for payment, it is simply informational.
Employee’s Rights Under a Self-funded Plan
Self-funded health plans are regulated under the federal Employee Retirement Income Security Act (ERISA), rather than state law as insured health plans are. They fall under the jurisdiction of the U.S. Department of Labor.
Federal regulations require the employer to provide employees with a summary description of their health plan and certain other documents related to the plan. They can also request to see a copy of the plan document that determines what benefits are available and how they get paid.
Self-funded group health plans are also regulated by other applicable federal laws including the:
- Health Insurance Portability and Accountability Act (HIPAA)
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
- Americans with Disabilities Act (ADA)
- Pregnancy Discrimination Act
- Age Discrimination Employment Act
- Civil Rights Act
The Impact of Health Care Reform
Many health care reform regulations apply to all group health plans, regardless of whether they are fully insured or self-insured, but self-insured plans are exempt from certain provisions of health care reform. The following are examples of reforms that do and do not apply to self-insured plans.
Reforms that do apply:
- Dependent coverage until age 26
- Preventive health coverage without cost-sharing (grandfathered plans are exempt)
- No rescissions of coverage, except in the case of fraud or intentional misrepresentation of material fact
- Improved internal claims and appeals process and minimum requirements for external review (grandfathered plans are exempt)
Reforms that do not apply:
- Essential health benefits package
- Premium rating restrictions
- Review of premium increases
Because the employer assumes the financial risk of providing and paying for health care benefits, they can either save or lose money depending on the level of claims incurred by their employees.
Most employers want to provide high-quality health benefits, so with a self-funded plan, providing employees with additional assistance to remain healthy can help keep costs low and allow employers to offer better-quality benefits. It Is important for both the employer and employees to work together for everyone to get the highest benefit from a self-funded health plan.
Employees can help keep costs down by:
- Eliminating unnecessary visits to the doctor.
- Discussing healthy living and preventive care with the doctor, and incorporate his or her recommendations in their lives.
- Following prescription drug directions precisely, and taking all of the prescribed medication, even if they feel better.
- Using in-network providers if the health plan uses a Preferred Provider Organization (PPO) or Point-of-Service (POS) plan.
Employers can help keep costs down by:
- Ensuring employees have the information they need and ensuring that they understand their benefits.
- Providing a workplace wellness program or other health incentives such as smoking cessation, healthy eating or gym memberships.
- Offering employee assistance programs that may reduce the need for medical care.
- Responding promptly to employee questions and requests for treatment authorization.
- Paying claims promptly.
To help keep health care costs down and create a successful self-funded health plan, both employers and employees need to communicate effectively, be wise health care consumers and ask and respond to questions appropriately.
If you would like more information on self-funded health plans and how a self-funded health plan can work for you and your company, contact one of Roper Insurance’s dedicated benefits specialists today by messaging them here or by calling 303-721-1145 today.