Human Capital Consulting And How To Self Fund Your Health Plan

Did you know that Self-funding for group health insurance coverage began in the late 1960´s? Most companies ran into problems as the insurance regulators of many states sought to bring these individual plans under their state regulation. The art of self-funding received a boost with the passage of the Employee Retirement Income Security Act (ERISA) in 1974. ERISA has changed the future of health benefits planning in the United States.

The ERISA act of 1974 brought into plan many provisions to help employers take control and decrease health and welfare benefits cost. One of those provisions, allowing employers to self-fund their health program, in return gaining better cost control. Employee benefits plans make up a large percentage of corporations revenue. Being able to self insure their employee benefit programs through ERISA with an HRA (Health Reimbursement Arrangements) have brought a great deal savings for many large group entities.

States may not regulate ERISA plans as though they were state-regulated insurance plans. Some states have attacked this premise, both through state regulation and efforts at the federal level to have ERISA changed, but ERISA remains intact concerning self-insurance by individual organizations.

To get a simple understanding of this, self-insuring means that the company with the insurance plan, rather than some insurance company. They pay the claims directly and assume the financial risks that accompany any insurance program. By doing this they can take away the margin of profit that most fully insured health carriers take off the top. Total cost savings and tax advantages too directly to the corporation.

Why consider self-insuring for health care? The major advantage is that the company is able to control the design of its own plan, to customize the plan's features to best reflect the company's needs. It is a significant consideration for some self-insurers that the state cannot regulate an ERISA plan as insurance and thus cannot mandate that certain specified benefits be included in the plan.

A company that is self-insuring can set its own coverage criteria, including what is or is not covered and what levels of deductibles, co-insurance and co-payments are to be applied. (A deductible is that amount the user must spend on some aspect of care before the insurance kicks in; co-insurance is the portion of a particular bill the user must absorb. In most instances a company would take an 80/20 approach. This is fairly common, with insurance covering 80 percent of a hospital bill and the user paying 20 percent; and a co-pay is the user's portion of a service bill, for example a $5 co-pay for a provider visit.) The higher the deductibles, the greater the co-payments; and the greater the user's co-insurance cost, the lower the overall plan's cost will be. A company can design a plan that best fits its workforce. For a young employee group, high deductibles, co-insurance co-payments and thus lower individual costs may be appropriate; for an older employee group, lower out-of-pocket costs and thus higher premium costs may be preferable. Coverage can be designed to best meet the perceived needs of the work force. More to come on HRAs, Self funding, and overall human capital consulting strategy.