There are many reasons why an employer would self-fund:
- The employer gains control over the benefit plan design and can customize it.
- The employer is not subject to conflicting state health insurance laws, regulations and benefit mandates, as these plans are regulated under federal law (ERISA, HIPAA).
- The employer is not subject to most state health insurance premium taxes.
- The employer is not funding the insurance company’s overhead and profits.
- The employer maintains control over the health plan reserves, enabling maximization of investment income and cash flow — income the insurance carrier would otherwise retain.
- The employer has access to all of data regarding its health plan which can be used to make intelligent decisions about changes to the plan and plan operations and to help control costs.
How does it work?
Typically, an employer contracts with a Third Party Administrator (TPA) to perform the administrative functions required to run plan operations. These services for administration of the plan include; pharmacy benefit management, providing access to provider networks, medical, disease, and case management, stop loss insurance, out of network negotiation, subrogation, etc. The TPA typically provides these services or coordinates them by contracting on behalf of the plan with qualified vendors to provide them.
Once a group is enrolled in the plan and all the pieces are in place, the TPA receives and adjudicates the claims, provides all the customer service, and coordinates the services performed by outside vendors on an on-going basis. The employer funds the claims. The TPA will submit claims that exceed the stop loss attachment points for filing with the stop loss carrier.