Self-funding Myths

Is there a downside to self-funded plans? For a company with a solid understanding of how the plan works, many of the common myths about self-funding are put to rest.

“Self-Funding puts all the risk on the employer.”

A properly implemented self-funded plan allows the employer to control the amount of risk they assume through the use of Stop Loss coverage.

“Self-funding does not work for smaller organizations.”

The economics of self-funding for groups do not change with the size of group. With an appropriate level of Stop Loss coverage, self-funded plans work for any firm.

“Your own poor current claims experience means that the plan will be too costly.”

Poor experience may mean higher costs whether the plan is insured or self-funded. However, the same benefits will still cost less in a self-funded plan as you are not paying for profit, risk charges, high trend factors and reserve charges in addition to the insurance coverage.

As is the case in many financial decisions, employers looking at self-funded plans need to examine the concept with a long term view (normally on a three-year basis).

“Budgeting a self-funded plan is difficult.”

Prior claims experience is an excellent indicator of your future financial commitments, and Stop Loss coverage will limit risk to a definable level for potential catastrophic claims. Maximum Benefit staff can help you establish funding levels (for budgeting purposes or cost sharing arrangements) based on the plan designs chosen.