About Self-Funding | Self Fund It

Under a fully insured plan, the employer pays fixed monthly premiums to an insurance carrier, who then assumes the responsibility and related financial risk for paying claims. The final rate includes all the necessary services and expenses including claim payment, medical costs, fees, and taxes. All groups have the burden of paying any costs related to the financial solvency of the company; one of the driving factors behind rate increases. In return, they accept the services offered by the carrier and relinquish responsibility for any medical expenses.

Self-funding is an alternative way to finance an employee benefit plan. Using a dedicated fund of cash reserves, the employer assumes the first layer of risk up to an affordable and predetermined level. Though the employer receives the same services, the self-funded economic model uses a different method of coverage and payment to eliminate a large percentage of the overhead costs, and redistribute excess interest and unspent premiums back to the employer.

A professional third-party administrator (”TPA”) manages everything from employee enrollment to premium collection and claim payment. The employee group makes premium payments to the TPA, who places them in a trust account and distributes the funds as needed.

The employer also pays a premium for “Stop Loss” insurance, which protects the employer’s business against any particularly large or unforeseen claims. Two types of Stop Loss coverage are secured: Specific Coverage protects against a particularly high claim on any one individual; Aggregate Coverage places a ceiling on the total dollar amount of claim expenses that an employer pays for the health plan during a contract period. This combination of coverage and payment not only allows the employer to retain excess premium and interest, but also ensures that the business is safeguarded against unexpected health care costs.