Companies offer employee benefits to retain and recruit their workforce. Benefits reflect your values as an organization and company, and more and more employees today value what their company stands for, not just what they are paid. Poor benefits can result in higher attrition, a waste of business cash flow, and hurt the company in the short- and long-term. On the other hand, strong benefits can be a competitive advantage for companies. And the best way to make your benefits more competitive and valuable to the organization and employees is through Self-Funded Health Insurance.
Health insurance is an expensive employee benefit. It can range in cost from $5,000 per enrolled person (employee or dependent) to over $10,000 per year per person. For a 100-employee company with dependents on the plan, the total cost may reach $1.5 million or more and represents a significant percentage of overall payroll costs. So while a company may want to offer strong benefits, plan costs may be prohibitive. Insurance plans are typically offered to employees through insurance carriers, but many employers instead choose to use Self-Funded Health Insurance to reduce costs and enhance plan value to members.
What is Self-Funded Health Insurance?
Fully Insured Health Insurance, which is what most companies are more familiar with, is when a company pays a set premium per member to a carrier for health insurance for the year. At the end of the plan year, the carrier may change the design of the plans and set new premiums. Often, premiums rise and benefits tend to decrease to compensate for rising claims costs (healthcare costs rise year over year ahead of inflation). Employers are limited in what choice they have in plan design, they have little control or transparency on how premiums are being spent, and carriers have a short-term outlook since plans are in place for one-year increments. These incentives all lead to an inferior plan experience for members and employers.
Self-Funded Health Insurance is an alternative to Fully Insured Health Insurance. When an employer self-funds their health plan, they fully cover the cost of claims, instead of a carrier. Most self-funded groups then insure against the risk of large claims with Stop-Loss Insurance. They can use a carrier to administer the plan or use an outside claims administrator called a Third Party Administrator or TPA. From the perspective of members, they don’t notice a difference; they receive an ID card and can receive care just the same way as with a fully insured plan.
The Benefits of Self-Funded Health Insurance for Small and Mid-Market Businesses
Employers have complete discretion over the plan design and benefits of their Self-Funded Health Insurance plan. If they want to make visits to primary care physicians free, they can do that. If they want to steer employees to low-cost surgical centers, they can do that. If they want to keep their plan design the same but just change telehealth vendors, they can do that. If a new medication comes on the market and they want to make it more easily available to members, they can do that too.
The benefits of a self-funded health insurance plan are the flexibility and potential for cost savings. Employers can make their health insurance spending more cost-effective and impactful on employees’ well-being. By cutting costs, they can create a more stronger benefits package that makes them more attractive to potential new hires and retains existing employees.
With a self-funded health plan, employers can retain all or a portion of unused premiums, which is generally not the case with fully-insured health plans. This has many implications.
Employers are incentivized to invest in the long-term health of their employees, whereas insurance carriers are merely concerned with the next 12 months at most. So employers are much more willing to support a long-term health initiative and this is a major advantage for employees.
Employers are able to spend their costs in ways that matter for their employees, not all the employees insured by the carrier. Maybe you employ many young people who might be interested in mental health benefits and fertility care, or employees who are exposed to more potential injury in the workplace and would benefit from emphasizing physical therapy. A self-funded employer can choose to emphasize these programs and tailor their benefits in a way other employers cannot. This means you can customize your benefits to make them as attractive as possible for your target workforce, which increases your retention and supports your recruitment.
How Self-Funded Health Plans Help Recruitment and Retention
A great way for employers to make their benefits a competitive advantage is to consider what their target workforce wants. One employer may decide to be the destination for young family-minded workers by offering great family planning and fertility benefits. Another employer may be in an industry with significant physical burdens on their employees, resulting in missed days of work, workers comp claims, and more, so they really emphasize preventative physical therapy and mental health support.
The possibilities are endless; the only requirement is a leadership team desiring to get involved and invest in the health of their employees.
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