Self-Funded Products Re-Emerge in the Benefits Market

There has been a recent push in the benefits market for self-funded (partial self-funded) products. The products are targeted at the 50-200 employee group sizes. These types of products are not new. They have been around for a number of years, being very popular about 20 years ago. The recent re-emergence is caused, in part, by the new healthcare reform act. If you are considering this type of product, please proceed with caution.

Why should you proceed with caution? Most of you are familiar with the fully-insured plans. You pay your monthly premium, and your carrier pays the incurred claims. Self-funded plans are different and they can be both tricky and confusing. The first important component to a successful plan is to find the right Third Party Administrator (TPA). Your TPA actually processes your claims and pays them as well. They negotiate pricing for re-insurance and can also find the best network of providers to fit your company. Where you need to be very careful is regarding the various funding methods that support your plan throughout the year. Does your re-insurance carrier pay for large claims immediately, or do you have to pay them and wait from re-imbursement? As you can imagine, if not done correctly, that could be a huge drain on your cash reserves. What happens if you decide you want get out of the plan and go back to fully-insured? If that happens, you have to consider what is called “run-out exposure”. In other words, you are responsible for any claims that were incurred before you terminated your self-insured plan. These “run-out claims” could continue for 90-180 days. If you contract is not done correctly, you are left with this cost exposure.

Now that I’ve seemingly talked you out of the self-insured product, let me say that there are good, safe products out there. The key is finding a trusted insurance advisor that has adequate knowledge of this market. One that can find you a plan that has all of safe funding mechanisms built in. If that is done, the self-insured market is not something to run from.