A CFO and CHRO’s Guide to Self-Funded Insurance Programs

All group medical benefit plans fall into one of two categories: fully insured or self-funded.

Under a fully insured health benefit plan, an insurance company assumes the financial risk of loss in exchange for a fixed premium paid to the insurance company by the employer. With a fully-insured health plan, the employer pays a certain amount each month (the premium) to the health insurance company. In return, the insurance company covers the costs of the employees’ healthcare. With a fully-insured plan, there is no additional risk to the employer. The employer knows exactly what their plan is going to cost each year. The downside is if the employees are healthy and don’t use much health care, the employer has spent a significant sum and doesn’t get any of the money back.

In a self-funded (or self-insured) group health plan, the employer assumes the financial risk of paying for employee health care claims under the cost-sharing terms of the plan. Employers typically set up a trust fund for corporate and employee contributions to pay incurred claims. With self-funding, the healthier your employees are, the lower the plan costs will be. However, employers must be able to educate their employees about wellness benefits and best practices (like wellness visits and choosing a primary care provider so that minor health issues aren’t seen in emergency rooms, which greatly increases cost of care).

Risk Management and Insurance Programs with Fully Insured Plans 

The risk an insurance company takes with a fully insured plan can be translated into a dollar amount for the employer. That amount is the premium amount an employer pays each month for the insured group medical benefits and includes the following: 

• Current and predicted claims cost  
• Administrative fee  
• Premium tax paid to the state 
• Insurance company profit

Employers who self-fund their medical benefits do not pay the premium tax or insurance company profit. They do, however, assume the costs of paying for claims and administrative functions. Many companies that opt for self-funded insurance programs outsource plan administration functions to a third party administrator (TPA).

The biggest disadvantage companies face with self-insurance is not understanding their exposure to risk. Employers with self-funded (or self-insured) plans retain the risk of paying for their employees’ health care themselves, either from a trust or directly from corporate funds.

When a company doesn’t prepare and save for their level of risk, the company’s self-insurance isn’t able to cover the proper amount for accidents. This negatively impacts a corporation’s bottom line.

Self-Funded Insurance and Regulatory Compliance

After the pandemic in 2020, many employers are currently dealing with how to handle benefits for remote employees who may have moved from the state in which the company headquarters is located to another state, or even out of the United States. This is because insured plans must comply with some of the federal requirements under the Employee Retirement Income Security Act of 1974 (ERISA) but are primarily governed by the state where covered employees reside.

Self-funded health plans are governed by ERISA, which also preempts state insurance regulations. Therefore, employers with self-funded medical benefits are not required to comply with state insurance laws that apply to medical benefit plan administrators. 

The distinction between state and ERISA regulations is important when determining if self-funding is right for your organization. Multi-state companies with fully-insured health plans must comply with the regulations of each state in which they have plans and covered employees. Multi-state self-funded plans need only comply with ERISA. 

How CareHive Can Reduce the Cost of Self-Funded Insurance Plans

For companies and employees, navigating healthcare options can bring equally mixed results. Employees are unsure of which care lane to take for illnesses, injuries and middle-of-the-night emergencies. Choose the wrong path and the cost can be shocking, both for the patient, and the self-funded insured employer taking on financial risk. In fact, emergency room visits average a whopping $2,350 per episode, which is more than 20-times the cost of a virtual or telemedicine visit. Even primary care and urgent care visits are two to three times more expensive than virtual care.

“Companies want their employees to be well and productive, and they are looking for healthcare solutions to provide navigation and advice in the moment,” said Dan Moloney, CareHive’s SVP of Data and Analytics. “That’s where CareHive comes in as we navigate employees to the lightest touch of care that is appropriate for the situation and avoid expensive exacerbations. Not only do we help employees get back to productivity, but we also demonstrate immediate, first year ROI via healthcare cost savings – and this ROI grows in future years.” 

Additionally, some employers are starting to cover only catastrophic care insurance, leaving lower-level care like primary and urgent care to be paid from a High Deductible Health Plan. Efficient solutions like CareHive can provide a lower-cost alternative to expensive out-of-pocket transactions for routine care while being plugged into a traditional care network or primary care organization.

Carehive is a unique hybrid, providing navigation in-network to save employers on network leakage costs and unnecessary high-cost utilization, bending down cost curves. The solution also manages chronic care with proven outcomes and greater patient convenience. CareHive is data-driven as it guides access to care, directing patients to the most effective choices for chronic, specialty, and urgent care. This means that CareHive can optimize outcomes, patient satisfaction (with an unheard of 92 NPS in the healthcare industry), and cost effectiveness to help an employers’ bottom line.