Employers providing health care benefits to their employees can choose one of two options: a fully insured health plan or a self-funded health plan. Although there are many similarities between the two, there are striking differences as well—and each approach has its pros and cons.
If you’re wondering if self-funding might be right for your organization, the International Foundation e-learning course Self-Funded Health Plan Basics lays out the pros and cons to consider.
Advantages of a Self-Funded Health Plan
Self-funding a health plan incorporates several potential advantages for employers, including the following:
- There is more flexibility in customizing the plan to the employer’s goals and the employee population.
- The employer has more control over selecting, monitoring and coordinating all plan vendors.
- The employer retains funds when health claims are lower than expected.
- Self-funding a health plan is often less costly because:
- There are no profit or risk margins to pay to an insurer.
- There are no state-levied premium taxes.
- The employer health plan is not subject to state insurance laws and mandates.
- It is easier to access data on health care usage to identify trends and opportunities for cost savings.
Disadvantages of a Self-Funded Health Plan
Self-funding a health plan also carries a number of disadvantages, including the following:
- The employer is exposed to risk of high losses due to extraordinary claims.
- Current year expenses will be unpredictable.
- There is a possibility of financial loss due to operational inefficiencies.
- The risk of regulatory penalties and lawsuits increases due to potential for errors caused by ignorance or lack of understanding.
- There is a higher risk of in-house fraud or abuse.
- The employer is exposed to higher risk based on demographics of the employee population (e.g., an employee population that skews older could increase the risk of high health claims).
Want to Learn More?
Learn the ins and outs of how self-funding works and the plan design options and tools for mitigating risk when you enroll in the e-learning course Self-Funded Health Plan Basics. (Or depending on your learning style, you may prefer the helpful reference book Self-Funding Health Benefit Plans.)
Communications Manager at the International Foundation
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