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Benefits of Self-funded Health Insurance

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Benefits of Self-funded Health Insurance

Benefits of Self-funded Health Insurance

Self-funded health insurance is an arrangement of self insurance for providing healthcare or disability benefits to the employees, the risk for payment of claims being taken by the employer. The eligibility and coverage terms are written in a plan document and are similar to that found in any group health insurance policy. The benefit of Self-funded health insurance is that a company does not have to look up some insurance company for insurance. The company or any business brings together assets by themselves that they plan to use as coverage for costs related to health care of their employees instead of taking the help of some insurance company for the act. However, there are certain limitations of Self-funded health insurance.

Benefits of Self-funded Health Insurance

Self-funded health insurance benefits a company in two ways. Firstly, a business most likely has its own department of human resources whose people are eligible to look after the plan, thus lowering the administrative costs. The second benefit is that whatever profit is earned in this way, the company uses to lower the cost of the plan.

Limitations of Self-funded Health Insurance

It must be noted that self-funded health insurance are not going to be an ideal proposition for many companies. To make it feasible, a company must have at least 250 to 300 employees. For a business with greater number of employees, the workability of this kind of health insurance becomes practicable as there is availability of more money to meet the costs. However, in spite of employees number going over 300, there still remains other factors that need to be taken into account before finally going for self-funded health insurance.

Risks involved with Self-funded Health Insurance

It needs to be noted that a couple of catastrophic claims are enough to completely use up this plan and thus putting the company in danger. To avert this kind of situation from happening, companies buy Specific Stop-Loss reinsurance. This kind of insurance is purchased to get coverage of all claims that are over a certain limit. This way, a company puts a limit on possibility of risk. If the limit set earlier is higher, the specific Stop-Loss reinsurance will automatically cost low.

There may be many claims that do not meet the limit in spite of having Specific Stop-Loss reinsurance. In this situation, the business normally buys Aggregate Stop-Loss reinsurance, which is one type of Stop-Loss reinsurance, to protect against any high rates of utilization.

In Aggregate Stop-Loss reinsurance, an attachment point of total claims is first found out to represent the maximum liability amount of the business in a given period. In the event the total amount of claims goes over the amount, the insurance company compensates the business. Aggregate Stop-Loss reinsurance is a good proposition for small businesses as self-funded comes with its own risks.

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