They offer the same flexibility and costs saving available to people at larger organizations. According an article published by Physicians Care,
"When we set up a self-funded plan for a smaller employer, we help them select the appropriate level of stop-loss or excess-loss insurance, which provides reimbursement for large catastrophic claims. Stop-loss insurance allows smaller employers to consider this very economical approach to providing employee health benefits because it protects them from large claims ("Is Self-Funding or Fully Insured Right for Your Company?")."
Although self-funding can offer many organizations with the chance to reduce costs there are instances when this option is simply not appropriate. The inappropriateness of the option has a great deal to do with the demographics of the employees. If a company has a significant number of older workers or workers with chronic illnesses, such a plan would not be advantageous. The main reason for the lack of advantage is the likely increase in premium amounts that will occur, particularly if the insurance company engages in lasering.
This type of program may also be inappropriate for extremely small organizations, such as a small convenience store or restaurant. In these instances business owners may not have the income needed to fund such programs or any type of health insurance program.
Basically Self-funded plans are appropriate when the proper research has been conducted and decision makers within the organization believe that it is appropriately. Self-funding is not a type of plan that should be taken lightly because there are serious risks involved if it is not handled appropriately. Decision makers should take into consideration the demographics of their employees and other factors that my influence costs.
Factors Organizations should be aware of Prior to implementing such a plan organizations should have an understanding of the risks associated with self-funding. In addition companies should carefully research the types of self-funded plans that are available and choose the correct one based on the needs of employees and the costs associated with meeting those needs.
According to Gammon another major issue that organizations must consider is the phenomenon known as lasering. This particular practice occurs when an employee has a high number of claims caused by an illness and as a result the insurance company raises the deductable for that employee (Gammon, 2006). Lasering can be avoided by choosing an insurer that does not participate in this practice. However, in some instances companies that does not laser simply place the expense in the insurance premium. In addition in many cases the increase in the premium level is temporary (Gammon, 2006).
Gammon (2006) further explains that timing is also an issue that employers must be aware of. According to the author, timing is a significant issue when an employer decides to switch to a commercial plan. If an organization decides to switch to a commercial plan and away from self-funding, they have to make this change when nothing is happening. If the organization decides to switch when claims are pending the previous claims may be reimbursed. For this reason it is advantageous of companies to set aside at least two months of estimated claim payments. In addition in some cases a third party administrator is needed to process and make payments on claims. If this is the case the third party will need access to the network of doctors associated with the self-funded plan. Since this is the case decision makers must pay careful attention to timing. Finally Gammon (2006) points out that,
"In deciding if self-funding is a good alternative, companies should consider the size of their workforce, insurance executives say. Most executives...
.."If you have fewer than 200 employees, you need to understand the makeup of the group and the history," said Jay Fulkerson, president of UnitedHealthcare of Wisconsin, an insurance and managed care company. "It's all about mathematics. The more members, the more predictable forecast of claims experience (Gammon, 2006)."
As with the adoption of any type of new strategy or plan an organization must weight the pros and cons and make an informed decision. There are many organizations that have chosen the self-funding options and are completely satisfied with the results. On the other hand, some organizations have been displeased with outcomes associated with self-funding. With this understood, companies should carefully consider the option prior to implementation.
The purpose of this discussion was to examine self-funded healthcare plans. The research asserts that self-funded insurance is defined as a kind of job-based health insurance plan, that is paid for by the employer. Self-funded insurance plans are a growing trend for organizations that desire to offer employees insurance while also reducing costs. Self- funded insurance is different from traditional insurance plans because employers take on much of the risks associated with paying premiums.
The research also focused on the advantages and disadvantages of self-funded plans. The advantages associated with a self-funded plan included reduced costs, greater control, flexibility, avoidance of state mandates, and information management. However, overall it was concluded that a greater level of control is the most prominent advantage f the self-funded insurance plan. Along with the advantages, there are also some disadvantages associated with such a plan. The disadvantages include increased risks associated with the increased and often unforeseen chance that an employee will have a catastrophic illness that will result in a great deal of expense for the company
The investigation also focused on when self-funding is appropriate and what precautions should be taken. One of the primary issues that organizations must be aware of is the issue of lasering. This occurs when the insurance company increases the premiums that the organization pays based on the medical needs of a single employee. Organizations can avoid this by not engaging in activities with companies that engage in this practice. Companies also have to get some type of stop loss insurance. This type of insurance will protect a company in the case of a catastrophic incident occurring with an employee. Overall organizations should take the implementation of such a plan into careful consideration before going through with it. The organization should be certain that a self-funded plan will be of benefit to the company.
Advantages of Self-Funding. Retrieved September 30, 2009 from; http://www.physicianscare.com/content/public/default.aspx?id=327
Gammon, R.B. (2009) Self-funded health care could lower costs. The Business Journal of Milwaukee - by Retrieved September 30, 2009 from; http://milwaukee.bizjournals.com/milwaukee/stories/2006/02/27/focus4.html
Self-funded health insurance: It's about risk, vulnerability, cost savings
Schreck, Tom the Business Review (Albany) - by for the Business Review Retrieved September 30, 2009 from; http://albany.bizjournals.com/albany/stories/2005/12/05/focus4.html
"Erisa." Retrieved September 30, 2009 from; http://www.dora.state.co.us/INSURANCE/consumer/2009%20docs/consFaqERISA010909.pdf
Is Self-Funding or Fully Insured Right for Your Company?. Retrieved September 30, 2009 from; http://www.physicianscare.com/content/public/default.aspx?id=330
What is a self-funded health plan? Retrieved September 30, 2009 from; http://healthinsurance.about.com/od/faqs/f/self-fund.htm
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