Self-Funded Benefits

All group medical benefit plans fall into one of two categories:  self-funded or insured. The choice of one over the other should not be  made arbitrarily. Each type carries its own set of administrative rules  and legal constraints.

Most employers with more  than 200 employees self-insure some or all of their employee health  benefits. Many employers with fewer than 200 employees also self-fund,  but these employers require greater stop-loss insurance protection than  larger employers. As a general rule, employers with fewer than 100  employees fully insure their group benefits.

What is Self-Funding?

Sioux Falls Group Benefits

A  self-funded health plan is one in which the employer eliminates  obligations to a health plan provider by assuming the financial risk for  providing health care benefits directly to its employees. 

Rather  than playing fixed premiums to an insurance company — which, in turn,  assumes the financial risk — the employer pays for medical claims out of  pocket as they are incurred. 

It's  important to be a wise health care consumer, especially when your  employer assumes the financial risk of providing you with health care  benefits.

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There are numerous well-documented advantages to self-funding for employers that manage risk well, including:

  • Reduced insurance overhead costs
  • Reduced state premium taxes
  • Avoidance of state-mandated benefits
  • Choosing benefits services à la carte
  • Flexibility in plan designs, administration, and offered services
  • Customizable stop-loss insurance to reduce the risk of high claims
  • Improved cash flow
  • Additional cash flow if reserves are held in an interest-bearing account

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