What is self-funding?
Self-funding is an alternative yet effective approach that employers can use to gain greater flexibility and control over their health plan costs. Through self-funding, employers have the ability to take advantage of several benefits not necessarily available under a traditional fully insured program. Lower operating costs, increased cash flow, flexibility in plan design and enhanced claim management are many of the positive aspects of being self funded. In addition, employers often benefit from reduced premium taxes because most states tax only the stop loss premiums and not the self-funded claim fund.
To provide an extra layer of financial protection against unforeseen catastrophic claims, a majority of self-funded employers purchase Medical Stop Loss coverage. The amount of risk to be reinsured is a function of the employer's size, nature of business and risk tolerance, and is traditionally determined via collaboration between the employer, consultant and in many instances, the Stop Loss Carrier.
Specific Stop Loss coverage is designed to limit the employer's cost for eligible medical expenses per covered individual. It allows self-funded employers to protect themselves from those catastrophic claims that exceed the deductible level. The specific deductible is selected based on the size of the group and the employer's capacity to assume risk, as well as the medical claims experience of the plan. Once the specific deductible is exceeded, the carrier will reimburse the employer for all eligible expenses.
Aggregate excess loss coverage is provided to limit the employer's overall annual liability for a self-funded plan. This coverage addresses the accumulation of expenses on all individuals covered under the plan. When eligible expenses paid during a contract period exceed the annual aggregate deductible, the group is reimbursed as specified in the contract, typically after the close of the contract period.
Medical, Prescription Drug, Dental, Vision and Short-Term Disability are expenses that can be considered under the aggregate.