Making the (Big) Move to Self-funding Arrangements: Size May Matter

Bob Elmer

Time to Make the (Big) Move to Self-funding? | Bob Elmer | Corporate Synergies
Making the (Big) Move to self-funding Arrangements: Size May Matter | Bob Elmer | Corporate Synergies

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A double-digit increase in medical and prescription costs continues to pressure companies of all sizes, and employers are looking for relief. As a result, some are evaluating their insurance coverages and, depending on their size, taking a close look at self-funding.

With self-funding arrangements, the employer avoids certain Affordable Care Act (ACA) taxes, state mandates and premium taxes. Self-funding also allows for better reporting and plan design flexibility. Although alternative strategies like self-funding are becoming more and more popular, not all employers are dropping their fully insured plans to make the leap.

Funding Arrangements for Employers with 50-300 Eligible Employees

A fully insured business with 50 to 300 eligible employees is pooled through the carrier’s book of business, meaning the risk pool is much larger. One positive change that came out of the ACA was a mandate that 85 cents of every dollar spent must go toward claims and not administration. As a result, fully insured carrier rates are often more competitive than self-funded plans.

Facts to consider: (click + on left to expand each)

In our experience, the majority of employers with 300 or fewer total eligible employees have found carriers’ fully insured contracts to be more competitively priced and, therefore, choose to remain fully insured.

Employers are evaluating self-funding arrangements to control spiraling prescription drug and medical costs.

Funding Arrangements for Middle Market Employers

Groups with 300 or more employees are considered by most carriers to be fully credible. Carriers consider 100% of the group’s claims when calculating the premium rates and projected renewal costs. Even though your claims are fully credible, carriers will provide reinsurance protection, which is usually pooled across their book of business to ensure competitiveness. In addition, the larger the group size, the lower the administrative costs per employee. In this market segment, administrative costs can range from 5% to 15% of total spend.

Facts to consider: (click + on left to expand each)

Many factors come into play when deciding on the funding mechanism that best fits your company profile. It makes sense to review this information in detail with your insurance carriers and broker partners to determine the best way to provide quality, affordable benefits to your employees.


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