Self-Insurance - Explained

A self-funded plan can be part of your strategy to lower health care costs

As the cost of health care continues to rise, businesses are always looking for ways to control costs without negatively impacting the health of their employees.

There isn’t a one-size-fits-all approach to lowering health care costs, but self-insurance, or self-funded insurance, may be an important consideration for your overall strategy. More and more companies of all sizes are choosing to partner with their insurance companies and set aside funds to pay for the health care needs of just their own employees.

Self-funded plans may be more flexible than traditional, fully-insured plans. They’re subject to less regulation and offer business the opportunity to customize their health care plan to meet their unique business needs. And because companies are paying only for the health care costs of their own employees, there may be money left over at the end of the year that can go toward other business needs.

Talk with a CBIS agent to see if a self-funded plan might be right for your company.

Is self-insurance right for you?

Self-insurance is also called a self-funded plan. This is a type of plan in which an employer takes on most or all of the cost of benefit claims. The insurance company manages the payments, but the employer is the one who pays the claims.

Benefits of Self Insurance

These plans are often more flexible for you as the employer because you may not be subject to certain state requirements, and at the end of the plan year, you can get money back.

Self-insurance offers you the flexibility to meet health care challenges and allows you to better manage health care costs.

And you still get the benefit of a network of providers – doctors, hospitals and specialists – with contracts that help determine prices.

Self-Insured

Monthly cost: An employer pays a specific amount to be set aside for administrative fees, stop-loss insurance and their employees’ expected hospital and doctor bills each month. The amount set aside reflects the expected costs of the employer’s group of employees.
Claims payment: Employees seek care from doctors, hospitals and specialists, and get prescriptions at pharmacies in their plan’s national or local networks. The claim bill is paid directly from the monthly expected pool of money.
Money back: At the end of the year, the total monthly cost set aside is reviewed against the total claims paid out. Any amount left over is typically split by the employer and the insurance company according to the plan arrangement. The insurance company would retain a certain percentage for administrative and other costs. For example:

Fully Insured

Monthly cost: An employer pays and insurance premium. The amount goes into a larger pool of money collected by the insurance company to pay claims across a group of employers.

Claims payment: Employees seek care from doctors, hospitals and specialists, and get prescriptions at pharmacies in their plan’s national or local networks. The insurance company processes the claim and pays the bill according to the health plan.

Money back:

At the end of the year, the employer does not receive any money back.

$150,000

Total monthly costs (amount?) set aside at year’s end

$100,000

Annual claims paid out from set aside costs (amount?)

$50,000

Year-end balance ($15,000 To insurance company for admin. $35,000 Money back to employer)

This is for illustrative purposes only. Exact premium, claims and surplus dollar amounts will depend on the plan arrangement.

Self-insurance can be a flexible, cost-effective alternative to fully-insured plans

Monthly costs reflect only expected claims of employees
Financial protection if claims exceed that amount (known as stop-loss)
Opportunity to get money back at the end of the year
Not subject to all taxes and fees
Not subject to certain government regulations
More flexible benefits packages (customized plans)

Mid-Size & Group Insurance

These policies are normally through an employer or association and offer coverage to all eligible persons within the group. After the Affordable Care Act came into being, important reforms targeting plan quality and employee costs were introduced.

Enrolment in group plans was made easier, and because of the pre-tax funding of premiums such plans are cheaper than taking out individual health insurance. There can be multiple plan choices offered, and groups can use their size to negotiate better benefits for life insurance, vision and dental care, as well as long-term and short-term disability insurance.

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Insurance Forms and Applications

As with all things medical involving insurance, the forms and applications are necessarily complicated and involved. It is important to get expert advice when filling these in as an error could result in you not being able to claim the benefit to which you’re entitled. Make sure that the insurance company that you deal with has a good support system which allows you to ask questions and query problems you may encounter with the administration.
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Medicare Supplements

Medicare is limited in its scope. With an ageing population and massive funding issues Medicare tries to cover hospital insurance, outpatient coverage, and prescription coverage. There are huge gaps in the coverage – copayments, coinsurance, deductibles, medical expenses incurred travelling outside of the United States – are amongst the things which are not covered. “Medigap,” as it is known, is designed to fill these deficiencies in your cover.
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Dental

Dental insurance is often covered together with vision insurance in a single plan. Both of these are separate from normal medical insurance. These plans cover emergency care and maintenance – most do not cover cosmetic surgery.

The deductibles on dental insurance can be expensive. It is entirely dependent on the premiums that are paid and there are benefit caps and no limits to your out-of-pocket costs for adult dental care.Paediatric dental care is treated far more sympathetically with limited out-of-pocket costs and unlimited insurance benefits.

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Short-Term insurance

Short-term insurance is used for the millions of people caught in the coverage gap, who have incomes that are too high for subsidies or who missed open enrolment. Do be aware that there are 10 states which do not allow short-term plans.

This insurance can be used in the 14 states who have not accepted federal funding to expand Medicaid, and by people whose household incomes fall under the federal poverty level. If you’re premium is unaffordable and you don’t get premium subsidies you should consider a short-term health insurance plan.

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Life Insurance

Life insurance is one of the most important policies for families and businesses alike. Having your main breadwinner taken from you leaves an immense financial burden which life insurance addresses.

There are many forms of life insurance from fixed term policies, through to whole of life insurance and many variations in between. There are also critical illness policies which pay out the life insurance before death in the event of a fatal illness being diagnosed.

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Small Group Insurance

As the name suggests, these are insurance policies taken out by small groups of individuals to take advantage of the reduction in overall risks, benefits and deductibles. these policies are usually geared towards businesses with 100 or fewer full-time employees.

Often, small group insurance is far more affordable than the equivalent individual policy. This is because the insurance company can negotiate better rates with hospitals, clinicians and other services. There are also legal limits set for premiums – for example premiums for older employees cannot be more than three times those for younger employees.

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Individual health insurance

Not everybody has health coverage through their job. This is where buying individual health insurance comes in. Individual health insurance is coverage that you purchase on your own, on an individual or family basis, as opposed to obtaining through an employer. Individual health insurance can be purchased through the exchange, or off-exchange (directly from the health insurance carrier). If you’re a young adult of 26 years of age or older, unemployed, a part-time employee, or self-employed – even retired – individual health insurance is essential. Even a broken bone can have serious consequences on your finances. You need to have at least the bare minimum cover for accidents, or long-term illness If you are ready to start reviewing options please click the link below if you would like to know more we have provided additional information below:
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