Compensation packages offering ‘health benefits’ are coming with escalating price tags. A growing number of companies have discovered self-funded health plans add value in cost savings and more.
In basic terms, self-funded health benefit plans (also referred to as self-insured and self-funding) are a health plan strategy where an employer pays member health claims directly to health providers, rather than paying premiums to a health insurance company to cover those claims.
Companies choosing to use self-funded plans bypass the traditional health insurance model and instead work with a Third Party Administrator (TPA) in establishing, administering and managing the plan.
It’s not a complicated process. Companies considering self-funded health plans typically hire a TPA to provide the expertise in developing and administrating a customized plan. Working with a TPA, an employer is able to provide benefits, paying health providers directly only as needed and fixed administrative costs monthly to their TPA. This model represents significant cost savings to a company’s bottom line.
A traditional health insurance plan is built within a business model established by health insurance companies and involves an employer paying monthly premiums covering the projected claims, administrative costs and more to their insurance provider. The insurance company pays plan providers and keeps any unspent dollars as profit.
Self-funding represents a variety of benefits to consider –
Q: How much risk is involved with self-funding?
A: No one can predict the future when it comes to health and that uncertainty is the risk. Most TPA’s setup what is known as a Stop-Loss insurance policy that protects the employer from unexpected or catastrophic costs.
Q: How beneficial are claim reports provided by a TPA?
A: Federal regulations require TPA’s to track and provide reports to clients. These
company-specific reports are updated regularly and contain actionable information that can identify cost savings, guide plan customization and wellness strategy of an employer.
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