As president and CEO of The Kempton Group since 1992, Jay Kempton works closely with self-funded (self-insured) employers on a regular basis and has been part of many insightful conversations with them about what makes their health plans so effective. In this article, he shares 10 of the most common reasons employers say self-funding works for their businesses, including the lower cost of administration, cash flow benefit and control of plan design. Read on to get the full list.

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Employers Weigh In: 10 Main Benefits of Self-Funding

As a TPA specializing in self-funded (self-insured) benefit plans for the last 40 years, The Kempton Group regularly hears from clients about what they consider to be the biggest upsides of moving from traditional, fully insured plans. Here’s a breakdown of the 10 benefits of self-funding that come up most often.

  1. Minimized Fixed Costs: Self-funding minimizes the amount of fixed or sunk costs paid by employers/plan sponsors to operate the plan, leaving more dollars available to be used for the benefit of employees and their families.
  2. Lower Cost of Administration: Employers find that administrative costs for a self-insured program administered through a TPA are significantly lower than those included in the premium by an insurance carrier or HMO.
  3. Carrier Profit Margin and Risk Charge Eliminated: The profit margin and risk charge of an insurance carrier/HMO are eliminated for the bulk of the plan.
  4. Claims/Administration: Employers value TPAs that provide fast, efficient claims service. They also attach great importance to an electronic enrollment option and ID cards to be provided within 72 hours of request.
  5. Customer Service: Employees want and expect the convenience of having access to a toll-free telephone number and a dedicated customer service team, along with access to claims and eligibility information via secure internet portals.
  6. Cash Flow Benefit: The employer’s cash flow is improved when money formerly held by the insurance carrier in the form of reserves, for unreported and pending claims, is freed for use by the employer.
  7. National Provider Network: Multi-state employers require and appreciate TPAs that offer a national integrated program of PPO networks.
  8. Control of Plan Design: The employer has complete flexibility in determining the appropriate plan design to meet the needs of the employer and employees. The employer can redesign its plan at any time.
  9. Mandatory Benefits Are Optional: State regulations mandating costly benefits are optional because self-funding is regulated by federal legislation only.
  10. Cost Reporting: Employers greatly value TPAs that can provide detailed and frequent access to plan data. For example, employers appreciate a monthly detailed reporting of costs, by department or location, and by type of medical service, along with utilization and lag reports and electronic fund disbursement journals.