Employee benefits are a big challenge to many businesses today. Substantial costs of providing benefits affect company profitability, yet reducing or eliminating benefits can hinder a company’s ability to attract, recruit and retain the best talent. The January 1st deadline of the Affordable Care Act forced organizations with more than 100 employees to determine whether they would offer health insurance or pay a penalty and send their workers to public exchanges. Businesses with 50-99 employees should begin putting together a strategy before the clock strikes midnight on December 31st this year, as they will face a similar decision.
With these dynamics in play, many are seeking new approaches to benefits by using alternative solutions like self-insurance. The label “self-insurance” may alarm some business owners because they often incorrectly presume that the company has to assume more risk and administrative responsibilities. That doesn’t have to be the case. If structured properly, this strategy effectively provides appropriate protection and allows for various levels of stop-loss policies and reinsurance to mitigate liability. An organization actively decides and specifies the degree of risk it is willing to assume. In addition, employers contract with an insurance carrier or third party administrator to handle administration and claims. The advantage is that businesses often experience savings over traditional fully-insured plans because they pay only for claims actually incurred. They save the difference between premium payments and claims expenses. In the event that claims exceed expectations, expenditures stop and risk coverage begins.
This is an appealing strategy for some because it can save money, increase cash flow and reduce premium taxes. In addition, self-funding offers flexibility in plan design, allowing employers to be more selective in designing their benefits options versus “canned” plans that are available through more traditional routes. Self-insurance can be an optimal arrangement for employers with a young, healthy workforce who are likely to pay more for premiums on the open market.
To experience maximum savings, self-funding should be coupled with a robust wellness program and guidance to help employees become better healthcare consumers. Savings resulting from these initiatives have an immediate benefit to employers.
Self-funding was an option traditionally reserved for larger employers, but is now an attractive option for smaller businesses (25+ employees) with the right demographics and benefits strategy.
ACA has imposed mandates and penalties but the market is responding by innovating benefit plans and alternatives