Self-funded Health Plans

If your small business is big enough, self-funding can slash costs

By Greg Brown

Healthcare premiums have spiraled upwards in recent years, making it hard for small businesses to keep up. Self-funded plans, common among municipalities and unions, can help keep costs down, if your company is in the right stage to start one.

Put simply, instead of paying out premiums, the employer collects money from workers and simply pays the medical bills -- with some limits.

Take a crash-course in self-insurance

The tax and human-resource implications can be off-putting at first, but you are essentially exchanging a sure loss -- premiums -- for a pool of cash your company controls that is used to pay your employees' medical care bills.
Try: The Self-Insurance Institute of America, which promotes self-funded plans for business, has this simple Web site, including a decent questions and answers page.

Would your business benefit from a self-funded plan?

It can be as simple as adding up claims over the past five years. Dig out the records and make a simple comparison.
Try: Eagle Claims Management, a third-party admin, offers this handy calculator. You can make a comparison on just the last year, or go back over five for safety's sake.

What if one of my employees has a huge claim?

The risk of self-funded insurance, of course, is the runaway health problem that costs millions and never seems to end. Cover the risk with stop-loss insurance, also known as excess insurance and reinsurance. Either way, after $35,000, or $350,000 or more, your financial pain stops.
Try: See a good explanation of stop-loss policies at 360 Degrees of Financial Literacy.

Find a vendor to help you get started

Most major insurancer carriers will help you set up a plan in order to sell you stop-loss policy.
Try: Some top health insurance vendors include Assurant Health, Aetna, Blue Cross and Blue Shield, United Health, Cigna, Humana, Principal and Kaiser Permanente.

Find a plan administrator

Going self-funded means more human-resources work, although an administrator can take on the work for a fee.
Try: The Self-Insurance Institute has a great list of active administrators with detailed contact data. One of the largest is Meritain. Google, too, has an exhaustive list of so-called TPAs, or third-party administrators.

It's important to understand that self-funding is not the same as being the insurer. The company pays claims if and when they arise, not in advance, which can greatly improve cash flow.
Self-funded insurers get a tax break, since they are exempt from the usual state taxes on healthcare premiums.
Money left in the self-insurance fund rolls over. If your crew has a healthy year, then there's that much more for future claims in the bank.
Make sure your current agent knows you are considering self-insurance. Chances are, they sell stop-loss or, possibly, will rework your plan to keep you onboard. Either way, you win.