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When deciding whether or not self-funded insurance is right for your Wisconsin company, the possibility for lower monthly health care costs should be weighed against the financial risk associated with covering employee health care costs.
While a Kaiser Family Foundation survey found that more than 93% of covered workers in organizations with at least 5,000 employees are in self-funded plans, it is not as common among small- to mid-sized companies because of the financial risk associated.
The benefits of self-funding employee health care costs
In a self-funded employee benefit plan, the organization decides what the plan covers, including employee eligibility, included and excluded benefits, cost-sharing, limits and retirement benefits. There is no need to settle for a “one size fits all” group insurance policy. Exemptions from state mandates allows you to decide what to cover or not cover regardless of state regulations.
Control cash flow
Health care payments can be more effectively managed, as coverage not pre-paid, giving access to cash and interest not available with standard group benefits policies. The plan can also delay payment of recurring costs until services have been rendered. Better yet, if claims are lower than expected, your company retains the savings not the insurer.
ERISA regulations apply, but not state laws
The ERISA law exempts self-funded plans from state rules, including insurance laws, reserve requirements, mandatory benefits and premium taxes. That said, you do have to follow the U.S tax code and federal anti-discrimination laws.
Lower premiums for employees
Self-funded plans have lower single and family premiums that insured benefits. As well, those employees with family coverage pay less out of pocket than those who are fully-insured.
The disadvantages of self-funding employee health care costs
For small- to mid-sized companies, there is a higher risk of costly claims, with fewer employees to spread over the likelihood of accident or illness. This can be partially avoided with stop-loss insurance that ensures reimbursement for claims above a specified dollar amount.
The DOL has interpreted the failure of self-funded employers to implement an efficient admin system as a breach of fiduciary duty if the plan is not correctly administered. The employer is legally responsible for operating the plan and follow all rules regarding private claims information.