Monday, June 26, 2006

Just Swell...

In what may (or may not) be a harbinger of the times, installation of (and enrollment in) self-funded (S-F) plans seems to be on the rise:

According to Benefit News (an industry newsletter), there has been a dramatic rise in the popularity of such plans. Interestingly, this seems to be an "across the board" increase: affecting pretty much every permutation of product design, including (apparently for the first time) Consumer Driven Plans.

What does this mean?
Good question [ed: thanx!].
First, let's examine how S-F plans work. S-F plans are a way for employers to purchase health care insurance. Typically, an employer pays $x to an insurer, which administers the plan and pays the claims. The premium is fixed for a period of time (almost always a year), at which time the premiums are reevaluated (Latin for "jacked up"). At the end of the year, one of two things will have occurred: the claims will have greater than the premiums paid in, in which case the employer owes the insurer: zilch. Or, the claims will have been less than the premium, in which case the insurer will refund: zilch. Pretty simple.
With S-F plans, the employer agrees to pay for the first $x, and will turn to the insurer only if the actual claims exceed this previously agreed-to amount. The idea is that the premiums are lower, because the employer has, in effect, chosen a VERY high deductible. Again, two eventualities are possible: claims are less than expected, so the employer saved money. Or, claims are higher than expected, and the employer will owe the insurer some cash [ed: this is a highly abbreviated explanation of self-funding].
Employers who choose the S-F route do so because they believe that it will save them money. And apparently, a lot of employers must feel this way, because a lot more of them are choosing S-F. Whether or not they are correct, of course, only time will tell.
UPDATE: Please be sure to read the comments for additional factors that make S-F attractive.
blog comments powered by Disqus