Transitioning from a fully insured health plan to a self-funded model can offer significant cost savings and greater control over healthcare benefits. However, it also introduces the potential of additional financial risk that employer groups must carefully manage. Fortunately, with the right risk mitigation strategies, especially robust stop-loss protections, this transition can be both smooth and financially advantageous.
Understanding the Risks and Protections of Self-Funding
Self-funding means the employer assumes responsibility for paying health claims directly, rather than paying fixed premiums to an insurance carrier. This exposes the group to potential volatility, particularly from unexpectedly high claims.
To mitigate these risks, it’s critical to secure strong stop-loss coverage. Stop-loss insurance acts as a safety net, protecting employers from catastrophic claims that exceed predefined thresholds.
Key stop-loss protections every employer should demand include:
- No Lasers or Exclusions for Life: Contract language should prohibit “lasers” (increased risk retention for specific high-cost individuals) or exclusions for pre-existing conditions, not just for the policy term but indefinitely. This ensures predictability and long-term risk protection.
- Renewal Rate Caps: A renewal rate cap limits how much the stop-loss premium can increase at renewal. Both renewal rate caps and no-laser provisions must be in place to effectively shield from catastrophic cost spikes.
- Aggregate Cap: When moving from fully insured to self-funded, employers should watch for the risk corridor, typically allowing up to 25% above expected claims before stop-loss kicks in. Lower aggregate caps (e.g., 10%) significantly reduce upside exposure, making budgeting more predictable and protecting financial stability, especially during the initial years of transition.
How BSI Supports Employers in Transitioning to Self-Funding
Shifting to a self-funded health plan requires careful planning and expertise. BSI starts with a thorough review of current plans, analyzing claims, employee data, and industry benchmarks to identify savings and manage risks.
Next, we conduct a deep evaluation of the stop-loss market to find the best coverage, focusing on protections like no future lasers and favorable renewal caps. Flexible funding options, such as level funding, help stabilize cash flow and budgeting.
BSI customizes stop-loss policies to fit each employer’s risk profile, ensuring competitive coverage with broad protections and lower administrative costs. We use actuarial insights to highlight cost savings and financial impact.
Throughout the transition, we prioritize maintaining or enhancing employee benefits and provide clear communication to keep employees informed and engaged.
Finally, ongoing monitoring of claims and spending, combined with predictive analytics, helps control costs, prevent surprises, and ensure long-term financial sustainability.
Conclusion
Self-funding offers employers greater control and the potential for meaningful cost savings but requires careful risk management. By partnering with an experienced advisor, securing strong stop-loss protections, and following a disciplined transition process, employers can confidently shift to a self-funded model that supports financial predictability and delivers high-quality employee benefits.