Should Benefits Brokers Encourage Self-Funded Health Plans?

Options are important to benefits brokers. The more options they can offer clients, the greater the chances of helping them craft the ideal benefits packages for their respective workforces. Given that choices are good, should self-funding be among those offered? Self-funding represents a lower-cost alternative to conventional health insurance.

Brokers may choose to not encourage self-funded health plans because their clients are not receptive to them. And when that’s the case, it could be that employers have bought into the common misconceptions associated with self-funding. If brokers can get beyond those misconceptions, they might be able to make themselves true heroes by offering very good health plans that don’t cost a small fortune.

Self-Funding Basics

Self-funding a health plan is not complicated to understand. Rather than purchasing group health insurance, an employer sets up a separate financial account into which healthcare funds are deposited. Employee claims are paid from that fund. As long as a plan offers the minimum essential coverage (MEC) required by law, it is good to go.

Most plans in the self-funded space offer benefits similar to traditional health insurance. Employees have access to office visits, telemedicine options, emergency department services, and so forth.

The Many Misconceptions

Although self-funding is gaining momentum around the country, far too many employers don’t even look at the option due to the previously mentioned misconceptions. Here are just four of those misconceptions:

1. Too Small to Self-Fund

Plenty of business owners are convinced that self-funding is only for large companies. However, KFF’s 2022 Employer Health Benefits Survey reveals that 82% of employees working for companies with 200 or more employees are covered by self-funded plans. As a side note, a manufacturer with 500 or fewer employers is considered a small business.

2. Self-Funding Means New Hires

Next up, business owners are under the impression that self-funding means bringing on new hires – more specifically, hiring staff to administer the plan. But new hires are not necessary. Companies with self-funded plans tend to leave administration to third-party administrators.

3. Self-Funding Plans Are Too Confusing

A third misconception of self-funding is that it’s too confusing for employees. It is not any more confusing than traditional health insurance. Employees still get health plan ID cards. They still make co-pays. Using a self-funded plan isn’t all that different. Really, avoiding confusion is all about good communication.

4. Large Cash Reserves and Necessary

Finally, employers resistant to self-funding often believe they need to have large cash reserves to move forward. It’s not true. Companies set money aside by the month, just as if they were paying insurance premiums. They also collect employee contributions through payroll deductions.

A Valid Option for Many Employers

Brokerage general agency BenefitMall, representing thousands of brokers and more than a hundred carriers explains that self-funding is a valid option for many employers who aren’t even given the opportunity to look at it. It is an option brokers should be giving their clients.

Here are four questions brokers can ask clients to test whether they would be good candidates for self-funding:

1. Are you looking to drop health insurance because it’s getting too expensive?
2. Do you believe your company is paying too much for health insurance?
3. Do you want more control over how much your company spends on healthcare?
4. Are you open to looking at a new way to provide benefits?

It should be obvious that self-funding is not the best choice for every company. Nonetheless, it is a choice brokers should be offering. Choices are important to brokers. But they are important to employers, too. Companies need to be able to at least consider self-funding.