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What is Self-Funding?
An employer has a self-funded group health plan--or a self insured plan--if the employer assumes the financial risk for providing health care benefits to its employees. Rather than paying fixed premiums to an insurance company who in turn assumes the financial risk, your employer pays for medical claims out-of-pocket, as they are incurred. Generally, employers who have self-funded plans will set up special funds to earmark corporate money to pay for employee medical claims.
Why Do Employers Choose Self-Funding?
An employer may choose to offer a self-funded health insurance plan for a number of reasons.
- Instead of trying to purchase a "one size fits all" health plan, self-funded plans can be customized to fit the needs of an employer's workforce.
- Employers with self-funded plans control the health plan cash reserves, allowing them to maximize interest income (insurance companies otherwise generate interest income for themselves by investing premium dollars).
- Self-funded coverage is not prepaid, as it is when the employer pays premiums to an insurance company. Therefore, companies who self-fund their health plans have improved cash flow.
- Self-funded plans are not subject to conflicting state health insurance regulations and benefits mandates. Instead, these plans are regulated by federal law.
- Employers with self-funded plans are not subject to state health insurance premium taxes.
- Employers can contract with the providers or a particular provider network that will best meet the needs of its employees.
How Self-Funded Benefits Work
Imagine you have made an appointment with your doctor when you are not feeling well. When you arrive at your doctor's office, you will be asked to provide your insurance card to your physician's office personnel. Your insurance card tells the doctor's office what type of health plan you have and how it is administered, i.e. to whom your claim should be sent.
After you have seen your doctor, a claim for payment for an office visit has been generated. Someone in your doctor's office will prepare the claim by typing the information from your visit onto a claim form. This form is then mailed to the administrator--the entity that will determine how your claim will be paid--listed on the insurance card you provided at the time of your visit. Your employer may administer employee health care claims in-house, or it may use a third party administrator (TPA).
The administrator then adjudicates your claim. Adjudication is the process of paying health care claims according to your health plan's contract. Your health plan's administrator will determine how your health benefits work and what payment is required for your doctor. Your plan may require you to pay coinsurance or a deductible before your health plan pays its portion of your bill. Or, your doctor may participate in a Preferred Provider Organization (PPO) or another type of managed care plan and therefore will charge discounted fees to your plan. These and other factors determine how much of the claim the plan will pay, how much you will pay, and how much the doctor will eventually receive for services rendered.
Once all of the payment issues are cleared up, your plan administrator contacts your employer for approval of your claim's payment (and any other current claims). Your employer approves payment of the claim.
After receiving payment approval from your employer, the administrator requests payment from your employer's bank. The bank will wire the appropriate funds to the administrator, who will then send payment to your physician. Your claim is paid.
This payment process generally takes two to four weeks.
The Explanation of Benefits
After your visit with your physician, you will receive an informational statement from your health plan administrator. This is the explanation of benefits, or EOB. An EOB summarizes your claim, the payments you must make, the payments your health plan (employer) must make, and any other payment information regarding your cleaim. This statement is not a bill or request for payment, it is simply informational.
Your Rights Under a Self-Funded Plan
Self-funded health plans are regulated under the federal Employee Retirement Income Security Act (ERISA), rather than state law as insured health plans are. They fall under the jurisdiction of the U.S. Department of Labor.
Federal regulation require your employer to provide you with a summary description of your health plan, and certain othr documents related to the plan. You can also request to see a copy of the plan document that determines what benefits are available and how they get paid.
Self-funded group health plans are also regulated by other applicable federal laws including the:
- Health Insurance Portability and Accountability Act (HIPAA),
- Consolidated Omnibus Budget Reconciliation Act (COBRA),
- Americans with Disabilities Act (ADA),
- Pregnancy Discrimination Act,
- Age Discrimination Employment ACt, and the
- Civil Rights Act.
Contact your human resources representative for more information about your rights uder your self-funded group health plan.
Do Your Part
Because your employer assumes the financial risk of providing you with health care benefits, it will either save or lose money depending on the level of claims incurred by its employees.
Your employer wantes to be able to provide you with high quality health benefits, but as the cost of providing health care rises, you too must do your part to keep benefits high and costs low.
Some ways that you can help save money for yourself and your employer are:
- Eliminate unnecessary visits to your doctor;
- Discuss healthy living and preventive care with your doctor;
- Follow prescription durg directions precisely, and be sure to take all of your medication, even if you feel better; and
- Use in-network providers if you have a Preferred Provider Organization (PPO) or Point of Service (POS) plan.
Additional Information
News article
- by JUDY GREENWALD
Contact Us
If you would like more information about self funding, please contact us at 888-669-4883, or email us at info@benico.com.
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