We’re sure you’ve come across self-funded plans in your adventures down the coverage rabbit hole. But what are self-funded health insurance plans and why do companies chose to offer them to employees?
Self-funded plans are health insurance arrangements where an employer provides benefits to employees instead of contracting an insurance company to handle the benefits for the organization. This means the employer ultimately handles all claims on behalf of its employees and therefore has less overhead for the benefits offered.
Self-funded health insurance plans allow companies to mitigate healthcare expenses—like rising premiums—by letting them fund the benefits offered to their employees, typically through an account set up to handle such things. However, it can open employers up to risk from excessive and costly claims.
In order to avoid such financial pitfalls, a company can pay a third party for insurance to protect them from mounting claims exceeding the set threshold, thus ensuring that the benefits fund doesn’t empty out.
Self-funded plans also require a third-party vendor to administer a network of available providers, maintain HIPAA and state compliance, and process claims, all through an Administrative Services Only (ASO) agreement. This is something that Delta Dental of Arizona offers.
When considering self-funded plans, it is important to note that they are also covered under the Employee Retirement Income Security Act of 1974, which imposes restrictions on things like waiting periods or the selection of eligible employees.