Is Self-Funding Right For Me?
The first thing to bear in mind regarding partially self-funded plans is that the plan is a concept more than a product. It’s a long term investment having to do with financing employee health care benefits. The second thing is that, for many employers, it is a concept that has helped them save thousands of dollars in health insurance premiums.
Insurance companies are looking for a profit:
Insurance companies, offering fully-insured products, try to price their products in such a way that, in the long run, will assure the high probability that they will earn a profit. Therefore, the premium paid by most employers to insurance companies for group health insurance far exceeds the actual claims and administrative costs generated by their plan. At best, employers are really just “trading dollars” with the insurance company and, in fact, are already “paying for their own claims.” The most efficient means of providing these benefits, therefore, is through self-insurance.
According to ERISA (Employee Retirement Income Security Act), an employee welfare benefit plan is any plan, fund, or program which is established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing:
- Medical, surgical, or hospital care or benefits;
- Benefits in the event of sickness, accident, disability, death or unemployment;
- Vacation benefits;
- Apprenticeship or other training programs;
- Day care centers;
- Scholarship funds;
- Prepaid legal services, or
- Certain other benefits described in the Labor-Management Relations Act of 1947
ERISA has also been expanded to include health laws. For example, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) amended ERISA to provide for the continuation of health care coverage for employees and their beneficiaries (for a limited period of time) if certain events would otherwise result in a reduction in benefits. In addition, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended ERISA to make health care coverage more portable and secure for employees.