Trending - Why Are Small to Mid-size Businesses Going Self-Funded?

Author

Grant Ameel

The uncertainty of it all...

​There has been a lot of uncertainty surrounding the healthcare industry in recent years and even more now with a newly elected President in office. 

A rapid change...

Last month the Trump administration tried to repeal the Affordable Care Act but they did not have enough Republican support to vote the GOP health-care plan into action. Nevertheless, Healthcare reform remains a top priority for the Trump administration as they hope to repeal the ACA before tackling their plans for a tax overhaul. With the current political climate on healthcare and the ballooning costs of insurance premiums many employers have started to look for less conventional means to find affordable and stable healthcare for their employees. One such option has become a popular trend in recent years and that’s self-funded health plans. ​

​Self-funded healthcare plans were once considered only an option for large enterprises with the resources and funds to assume the risks and expenses that come with paying the claims of their workforce. That notion is rapidly changing as recent data suggest that large numbers of small and mid-size companies are joining the self-funded trend within the past 5 years. If managed correctly, a self-funded employer could save 10% to 25% of their healthcare costs by eliminating the profit margins imposed on premiums from carriers of fully funded plans. Those potential savings are nothing new though. Neither are the potential risks of self-funded plans – they are a high risk, high reward healthcare strategy.  As much as a company could save on their healthcare benefits over the long term, they could just as easily encounter unexpected, catastrophic claims that could cripple a smaller business. For example, an employee battling an obscure form of cancer for multiple years could rack up millions of dollars in claims and the employer could be stuck footing the bill. 

So why the recent trend of small to mid-sized companies switching to self-funded plans?   

​Most experts attribute this trend as a recourse to the ACA. The reason being is that the Affordable Care Act requires fully insured plans to meet strict requirements – such as offering these 10 essential benefits. Self-funded plans however are not held to the same requirements and thus employers have more freedom to mold their plans to fit their employees needs while opting out of other benefits that are deemed less pertinent in hopes to reduce costs. In addition to that, the ACA has levied employer cost-share requirements in the form of taxes and fees, often referred to as the health insurance tax. This tax is mostly compensated by the carriers by increasing the premium rates they charge employers. Self-funded plans, however, are not subject to this ACA health insurance tax, nor are they subject to any state insurance regulations and premium taxes. Therefore, even though the risks are still there, self-funded insurance plans can now save money on the carrier’s profit margins, the ACA health insurance taxes, and by being exempt to meet certain essential benefit criteria. Those three cost saving traits have made self-funding plans more enticing to smaller businesses whom may have otherwise thought the savings weren’t worth the risks. 

​What can we expect for the future of self-funding?

​If President Trump and the GOP are successful in repealing the Affordable Care Act, the simple conclusion would be that the trend of Self-funded plans would cease - if Obamacare caused the surge in self-funded plans, then one would think its repeal would have the equivalent reverse effect. Well, it might not be that simple. ACA or not, employers are searching for any savings they can grasp onto in a country were healthcare and drug costs are rising out of control. 
Self-funding still provides great flexibility and carrier profit margin savings, regardless. So, unless the overall cost of healthcare premiums start to decrease across the board, don’t be surprised if the self-funded trend continues, regardless of how the healthcare reform changes under the Trump administration.  

In fact, this ​uncertainty in healthcare over the next 4-8 years could just be another driving motivation for even more companies to consider self-funding. All of which remains to be seen. 

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