Most discussions about self-funding come with the same warning: a self-funded health plan is not right for every organization. Self-funding comes with risk, so it’s important to choose the funding type that best fits your organization. With that in mind, how do you know if self-funding is right for your group?
Questions to Consider
Before starting down the self-funding path, make sure you have an answer to these questions:
- Do we have the financial stability to handle claim fluctuations? Even with stop-loss insurance, self-funding requires cash flow to cover large claims. Before changing your funding arrangement, assess your financial reserves.
- What are the potential cost savings, and how do they compare to our current fully insured plan? Make sure you’re looking at the whole picture. Analyze administrative costs, stop-loss insurance, and potential savings from avoiding insurance carrier margins.
- How will we manage large claims and catastrophic events? It pays to be prepared; evaluate stop-loss insurance options and risk tolerance for unpredictable high-cost claims.
- Do we have access to the right data and expertise to effectively manage claims and utilization? Self-funding is a complex solution. It requires access to claims data and strong partnerships with third-party administrators (TPAs), pharmacy benefit managers (PBMs), and healthcare consultants who can guide you through the unfamiliar landscape.
- Are we prepared for the long-term commitment of self-funding? Self-funding is not a short-term cost-cutting measure; transitioning to self-funding is a strategic decision that requires ongoing evaluation and adjustments.
The transition from fully insured to self-funded rarely happens overnight. Self-funding a health plan may require a reserve of cash set aside up front to help you pay for claims while the premiums are still accumulating. Some employers choose to move to level-funding while building the necessary cash reserve, as a first step towards becoming self-funded.
Data-Driven Decisions
Data is the cornerstone of strategic planning, so of course, no funding decision would be complete without reporting to back it up. If your organization feels that self-funding is on the horizon, Moreton & Company can help by running specialized reports that cut right to the heart of the question.
We begin by collecting relevant data for the past three years, including claims, premiums, enrollment by month, and large claimants. Once the data is received, we generate a self-funded feasibility study that will illustrate:
- Cash fluctuations your organization might experience when self-funding
- The claims reserve needed during the initial transition
- Potential savings when transitioning from fully insured to self-funded
- Various self-funded contract options and how they can affect your plan
- The impact of carrier/provider discounts and cost savings programs, such as patient assistance programs or international sourcing for prescriptions
This detailed analysis will give you a clear picture of both the risks and rewards your organization faces in moving to self-funding—giving you all the tools you need to make an informed decision.
