Self-funding health insurance can offer significant cost control, flexibility, and transparency for businesses. However, several misconceptions can prevent companies from exploring this option. Let’s clear up common myths and provide a clearer picture of how self-funding really works.
Misconception #1: Self-Funding Is Too Risky
Many employers assume self-funding is financially hazardous because they fear unpredictable, high-cost claims.
Reality: While there is financial risk involved, self-funded plans are typically paired with stop-loss insurance to cap potential losses. Stop-loss coverage protects against both individual large claims and total claim expenditures, making the model manageable even for mid-sized businesses.
Misconception #2: Only Large Companies Can Self-Fund
The belief that self-funding is only viable for large corporations with vast resources is outdated.
Reality: Advances in technology, third-party administrators (TPAs), and tailored stop-loss options have made self-funding accessible for small to mid-sized businesses. Many companies with as few as 50 employees are successfully using self-funded health plans.
Misconception #3: It’s Too Complicated to Manage
Some employers worry that self-funding will add too much administrative burden.
Reality: Partnering with a TPA or a knowledgeable broker significantly reduces the administrative load. Your broker can manage claims processing, compliance, and plan customization, allowing your HR team to focus on other priorities.
Misconception #4: Self-Funding Doesn’t Offer Predictable Costs
Businesses often believe that fully insured plans are more predictable because they come with fixed premiums.
Reality: While self-funding does introduce variable monthly expenses, tools like reserve funds and stop-loss insurance help mitigate unpredictability. Additionally, companies retain unspent claims dollars instead of handing profits to an insurance carrier.
Misconception #5: Employees Won’t Like a Self-Funded Plan
Employers may assume that employees won’t trust a self-funded health plan or will fear lesser coverage.
Reality: With proper communication, employees can appreciate the benefits of self-funding. Many self-funded plans offer better access to data, more targeted wellness initiatives, and customizable benefits that directly address employees’ needs.
How to Combat These Misconceptions
- Educate Your Leadership Team: Share success stories and data to illustrate the cost-control benefits of self-funding.
- Leverage Broker Expertise: A knowledgeable broker will help you design and manage a self-funded plan, mitigating risk and ensuring compliance.
- Communicate with Employees: Provide clear information about how the self-funded plan works, its protections, and the potential for enhanced benefits.
Self-funding isn’t as risky, complex, or exclusive as some myths suggest. With proper planning and partnerships, it can offer long-term savings, flexibility, and improved employee engagement. Reach out to us today to explore whether self-funding is right for your organization—we’re here to guide you every step of the way.
