Health care costs have increased every year since 1960, and it’s clear purchasers are ready for change. The Alliance, and other employer-owned cooperatives, are fueling the next generation of health care by empowering employers with data to provide high-value health care to their employees and dependents.
The pandemic has magnified our current system’s flaws, and many employers are considering switching from traditional health insurance to the self-funding model as a result.
Self-funding vs. fully insured
Fully insured is what most people consider traditional insurance. The employer pays a premium to the insurance carrier on behalf of each employee. In return, the carrier pays medical claims for covered services that are beyond the out-of-pocket maximum for which an individual is responsible. It doesn’t matter whether an employee has a medical procedure that costs $20,000 or $80,000 – the insurance company has contracted to pay all claims and assume all financial risk. This can mean that employers pay higher premiums to cover those risks and generate profits for insurance companies.
With self-funded insurance, the employer pays all employee claims so it matters how much an individual pays for care. And because there’s always the possibility of claims being higher than expected, most self-funded plans have a form of insurance in place, called “reinsurance” or “stop-loss insurance.” A third-party administrator (TPA) processes the medical claims and issues benefits on behalf of the employer. But while the employer assumes the risk, they also reap the rewards of any difference, including interest income.
The benefits of self-funding
- Transparency: Self-funding health insurance gives employers with full access to claims data – because they own it – to guide their benefit plan design. The Alliance provides accurate, easy-to-access information comparing cost and quality between providers. This enables employers to make smart decisions when designing their provider network and benefits plan.
- Customization: Depending on the needs of their employee population, self-funding gives employers the option to approach provider contracting differently. By offering leveled (or tiered) options, they can offer employees a range of choices while also guiding them towards preferred, cost-effective providers. Employers can also consider broader or narrower networks than those often available through the traditional insurance model. Making these customized recommendations that guide employees towards high-quality, low-cost providers helps keep costs down for both the employer and employees.
Want to learn more?
Contact the Business Development Team to see if self-funding is right for you.
About the Author
Melina Kambitsi, Ph.D, is senior vice president of business development and strategic marketing at The Alliance. Dr. Kambitsi joined The Alliance in 2017 and leads the teams responsible for business development, client development, and strategic marketing. She came from Network Health where she was chief sales and strategy officer. In this role, she was responsible for sales and underwriting, strategic planning, product development and risk-based contract analytics. Earlier she was senior vice president of sales at Blue Cross Blue Shield in Honolulu, Hawaii, and the vice president of sales, marketing, and product development at Blue Cross of Northeastern Pennsylvania.