There are typically two approaches to securing health coverage for your staff - group health insurance or self-funding.
Self-funding, however, can be costly and risky for some employers and is usually only done by larger organizations with thousands of employees. However, there is a hybrid model that can help small and mid-sized employers provide their staff with affordable health coverage: partial self-insuring.
To understand how partial self-insuring works, we should start with the basics of what a self-insured plan is. In a fully self-insured plan, the employer bears the risk of all costs incurred under the plan for claims and administration.
In essence, the employer acts as the insurer and pays claims from a fund that it pays into along with employees, who pay their share of premiums into the fund.
Also, the employer will usually contract with a third-party administrator or an insurance company to process claims and provide access to a network of physicians and other health care providers.
How partial self-insuring works
Partially self-insured arrangements provide some of the benefits of being self-funded but without all the risks, while plans will have the same benefits as insured plans have. Here's how they work:
Lower risk than fully self-insured plan
Typically, an employer should have at least 25 workers if it is considering a partial self-funded arrangement, but we've seen plans with fewer enrollees.
Many employers will opt for a partially self-insured plan to save money, but these types of plans also allow an employer to design a more useful and valuable plan for its workers.
The key to making this work is cost control, without which claims can spiral and drive up premiums at renewal.
Knowing exactly how much to set aside for reserves and how much you should set your employees' premiums, deductibles, and other cost-sharing can be complicated. But with the right mixture of benefits, plan design, and education, you can control behavior, which drives claims, in order to keep renewal rates from increasing too much each year.
The fine print
Employers considering partial self-insuring as an option should keep in mind the following:
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In February 2020, The Friedman Group joined AssuredPartners, the 10th largest insurance brokerage in the U.S. This partnership provides us access to additional capital and a national footprint that enables us to continue to negotiate the most favorable coverage terms and conditions for our clients, and allows us to provide an even broader spectrum of risk management support services.