Whether you’re a human resources professional, a union leader or a father, you’ve likely had to deal with health insurance at some point. In recent years, one of the most popular options for companies and organizations alike has been self funded health insurance, due to the possibility for high cost savings and the flexibility to choose your own treatment options. In this article, we’ll explore self funded health insurance in detail to help see if managing your own health insurance is right for you.
What is Self Funded Health Insurance?
As the name implies, self funded health insurance plans are those where an employer, a family or an organization takes it upon themselves to fund their own health insurance costs without making use of a traditional insurance company. This can range from a partially self funded setup, where some items such as prescription drugs are covered under an insurance plan and some are self funded, to a fully self funded plan where insurance companies have no involvement.
The practice or self funding health coverage for employees began decades ago at major corporations who believed that they could reduce their health care costs by taking matters in to their own hands. Now, virtually all companies with more than a few thousand employees and more than half of small businesses have some form of self funded health insurance protecting their employees from the high costs associated with health care.
There are a number of pros and cons associated with using self funded health insurance, which we will investigate below.
The Benefits of Self Funded Health Insurance
There are a number of benefits of ditching the traditional health insurance and instead working with self funded plans. Affordability is one of the best reasons to make a switch; regardless of whether you’re a business owner that is thinking about self funded health insurance for the company’s employees or an individual that wants to cover their family, a self funded plan can save in the long run. Most states exempt self funded health insurance plans from benefits regulations and taxes which can save hundreds to thousands per year alone.
Self funded health insurance plans also tend to have a lot more flexibility in regards to the benefits offered – and paid for – as part of the plan. Tweaking a self funded plan to remove benefits that aren’t worth paying for can shave a bit more off of the total premiums, reducing the bill while providing an adequate level of coverage.
It’s also possible to make just a small portion of the entire health care picture – such as dental coverage or short term disability benefits – fully self funded. Removing very high cost or high risk items from a health insurance plan can bring the cost down significantly; the only worry comes with having to foot the bill should someone need to make a claim.
Disadvantages of Self Funded Health Insurance
As with any major change, there are some disadvantages that need to be considered before adopting self funded health insurance. The biggest hurdle is that a greater amount of risk is assumed when going self funded, and that can mean huge costs in a year that sees a lot of claims due to illness or injury. When this occurs, the costs must be met and if there’s no money set aside in the budget, it can spell disaster.
Self funded health plans are also a bit more difficult to budget, as the costs tend to vary from month to month and year to year. Again, as the claims go up in one month and down in another, things can get tricky to try to predict the future and figure out how much needs to be set aside.
Finally, those who go with self funded health insurance need to be organized, efficient, and stay on top of things. Without diligence, costs can quickly go spiraling out of control, causing major headaches for whoever is footing the bill.
Is Self Funded Health Insurance Right for Me?
More than half of the businesses across the United States and tens of millions of people are covered under self funded health insurance plans. Ask around your social and professional circles to speak with those who work with a self funded plan on a regular basis, and find out what their experience has been. Self funded health insurance can be an excellent tool for those who are properly prepared to make the best use of it, and it’s almost certain to save money in the long run.
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