A growing number of small businesses in New Jersey are finding a new way to save money on their health care costs by switching to self-funded health care plans over traditional health care plans.
Under a traditional plan, employers pay a premium each month and the health insurer pays all of the employee claims and manages the health plan administration. But many small employers have a relatively healthy staff, and employees’ actual medical costs fall far below what the company spends on premiums.
Thus, many employers wonder if they could save money by paying their own employee claims directly, an arrangement called a self-funded health plan. With a self-funded plan, the employer still contracts with a health insurer to administer the health plan, but the employer funds medical claims as they are incurred based on the stop loss limits of the policy. If the employees’ medical claims are lower than expected, the employer may save a significant amount of money.
In the past, self-funded plans were not available to small employers because it was difficult to make a realistic prediction about health costs based on such a small pool of employees. But in the last few years, advances in software have enabled companies to better predict the expected cost of health care for a small number of employees. Now, many insurers are offering new self-funded health plans specifically catered to small businesses’ needs. In fact, UnitedHealthcare recently expanded its All Savers self-funded health plan for small businesses to a much broader range of businesses in New Jersey.
Small businesses that are thinking of switching to a self-funded plan should research the following when shopping:
- Stop-loss insurance. Self-funded plans carry a risk that the company’s health care costs could skyrocket if an employee is diagnosed with a serious illness or is injured. Companies can protect themselves from such catastrophic costs by coupling a self-funded plan with a stop-loss insurance policy, which protects companies against catastrophic claims that exceed a certain dollar limit.
- Monthly Claims Experience. Many employers may feel that they don’t receive timely claim information. Companies should look for plans that will post their monthly claims experience so that there are no surprises at the end of the year.
- Coverage Protection. A good self-funded plan self-funded plan should protect the employer from claims paid after their termination date. Look for ASO contracts with stop-loss provisions that have a twelve month incurred and multi- year paid liability after termination.
- Online cost estimators. Many employees may not realize it, but health care costs may vary wildly among different providers with no difference in quality. Giving employees the tools to compare the cost of a procedure at different providers may help them choose a lower-cost option.
Self-funded plans have the potential to help small businesses save significantly on their health care costs. The key, however, is to work with an insurer that can provide plenty of tools to help the company minimize its overall health care costs.