The Affordable Care Act, which went into effect in 2013, requires some employers to offer insurance to their full-time employees. They’ll face penalties if they fail to provide coverage.
As businesses struggle with the prospect of cost increases, they began to shift some of the costs to their employees through higher deductibles and copayments. As a result, more private sector businesses have turned to self-insurance.
With self-insurance, the employer takes on the financial risk of providing health care benefits to their employees. If the employer doesn’t have any claims, meaning their employees are healthy all year, then the company won’t have to pay anything.
This method can potentially bring massive savings to the organization. However, self-insurance also has disadvantages.
Self-Insured Health Plan
Self-insurance is popular among companies with over 500 employees. The rationale is that the large employee population can help the management spread the risk. With a self-funded health plan, employers can save significantly on premiums.
The problem is that self-insurance exposes the company to more risk if more claims than expected need to be paid. This is why organizations with many older employees or workers who have chronic diseases aren’t likely to benefit from self-insurance. Industries that face a lot of occupational hazards, such as construction or trucking, also face additional risk in the form of work-related injuries. Thus, self-insurance may not be wise for these companies.
To reduce the financial risk of self-insurance, employers often purchase stop-loss insurance. This coverage kicks in when the claims exceed a predetermined amount. Stop-loss insurance can either cover claims for one person or a group of people.
One example of stop-loss insurance is excess workers’ compensation. Apart from reimbursing claims that exceed the designated limit, excess workers’ compensation also provides other benefits. These include onsite safety checks, underwriting guidance, and catastrophic claim management, among others.
Fully-Funded Health Plan
A fully insured health plan is the traditional employer-sponsored health plan. The monthly premiums are fixed for a year, given that the number of people insured remains the same.
The main advantage of traditional health plans is that you won’t be taking on any risk. All you have to do is pay the premiums on time and in full, and your employees will get the coverage they need. If one employee’s health care expenses exceed the limit, they’ll have to pay for those out-of-pocket.
The downside to fully-funded health plans, of course, is the cost. The premiums can get expensive, especially for large companies, even if you’re just paying for the most basic coverage.
If you want to enjoy the benefits of both types of health plans, you can look into partially self-funded insurance. This method is less expensive than traditional health plans but isn’t as risky as completely self-insuring the company. You still pay a monthly premium, which goes into a reserve account. Your insurer taps into this account to pay for the medical care of your employees.
There are various ways to combine self-insurance and fully funded health plans. You can discuss this with the insurance company. You can also fully commit to their form of insurance. It all depends on what your employees need and what you can afford.
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