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Partial Self Funding of Group Health Insurance – A Better Alternative to Cutting Benefits
The average cost of employer-sponsored family health insurance premiums has more than doubled since the turn of the century (Kaiser Family Foundation, 2008). This spike in health care costs, coupled with current economic pressure, has forced employers to consider a wide range of options to contain the cost of their employee health plans. Most of these options lack ingenuity and simply pass more of the cost and risk onto employees one way or another. Employees wonder how they will cover the additional disbursements passed on to them in recent years.
However, a growing number of companies have discovered that self-funded or partially self-funded plans are a better way to control costs and maintain coverage. A 2006 SHRM article reported that “approximately half of all employees with health coverage are in plans fully or partially funded by sponsoring employers (Woodward, 2006). Yes, you read that right – approximately half – and that was three years ago!
There is a big difference between fully self-funded and partially self-funded plans. “The general underwriting rule is that it becomes advantageous to be entirely self-financing if an employer has 1,000 or more employees.” (Wells, 2009). A partially self-funded plan, however, can provide a small organization with many of the benefits of a fully self-funded plan with less risk and liability. These benefits include 1) substantial savings in the first year 2) relatively stable increases in subsequent years 3) flexibility in plan design 4) the ability to maintain a strong benefits package to bolster recruitment and development efforts. retention.
A partially self-funded plan design that has gained popularity since 2003 is the MERP (Medical Expense Reimbursement Plan). The MERP is simply a form of an HRA, based on the provisions of Sections 105 and 213 of the IRS Code that allow employers to reimburse employees for eligible medical expenses. MERP, however, has several advantages over a traditional HRA, including: 1) greater savings potential 2) greater flexibility in plan design 3) reimbursement of claims incurred rather than upfront funding of accounts and 4) availability of claims data and usage reports.
Typical first-year savings for companies that have a MERP plan in place is $1,000-$1,500 per insured employee per year. What would that mean for your organization: $30,000, $50,000, $100,000? In most cases, the plan design can be designed to closely mirror what was in place before so you can save money without having to sacrifice the benefits that are so important to your current and future employees.
Partial self-financing is a proven strategy for putting premium money back in your pocket. The momentum behind partial self-financing will continue to build as health care costs soar. Any organization that strives to be fiscally responsible and maintain strong employee relationships should invest some time in learning how a partially self-funded plan can be a better option than simply allowing your employees to absorb the costs. additional each year.
1. Press release, September 24, 2008, Kaiser Family Foundation, http://www.kff.org/newsroom/ehbs092408.cfm
2. HR Magazine, Vol. 51, No. 8, August 2006, Nancy Hatch Woodward
3. HR Magazine, vol. 54, No. 9, September 2009, Susan J. Wells
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