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Fully Funded vs. Self-Funded Benefits. What’s the Difference?

Employee benefits documents in a file folder with a highlighter
Employee benefits are constantly changing.

Should Your Company Switch to a Self-Funded Plan?

When it comes to making changes to your plans—like switching from a fully funded benefits plan to a captive or self-funded plan—the Benefits team at PayneWest has decades of experience and are eager to help you find plans that will save you money and potentially boost employees’ overall wellness.

Becky Byrne – Missoula, MT

One experienced benefits consultant is Becky Byrne, benefit planning sales executive at PayneWest. Byrne has more than 20 years’ experience in self-funded benefits plans; and of all the companies she’s helped switch to self-funding, not one of them has changed back to traditional plans.

“I want employers to be attracted to the subject—at least come and talk about it,” Byrne says.  “It’s about improving their work environment, employees’ health and controlling those expenses!”


So, What Are Self-Funded Plans?

Benefits plans that are self-funded are different than what we call “traditional” or “fully-funded benefits plans.” In a traditional plan, the employer agrees on an annual premium and pays that amount to an insurance company who then administers the benefits to the employees.

With self-funded plans, employers assume the risk of the insurance costs of its employees. The employer pays the premium directly to the health-care provider itself, and often contracts with a Third-Party Administrator (TPA) to handle tasks like processing and claims.


What Are the Benefits of Self-Funding?

  • Lower costs. Self-funded plans frequently cost less than traditional plans, which tend to go up in price each year.
  • Deep dives into your costs. Another benefit is being able to get ahead of costs because you’re strategic in your benefits plans. Self-funded plans can often offer incentives to employees to stay healthy, and these go beyond a little gym stipend. Self-funded plans can include on-site primary care, telemedicine, wellness plans and direct contracting with preferred providers.
  • Stop staff turnover and attract better talent. A third big plus saves you time from constantly replacing dissatisfied or sick employees who leave your workforce. When your employees understand how you’re working to keep their overall costs down and boost their health, they’ll appreciate your efforts on their behalf.
  • A better network. You’ll take a hard look at your networks in your self-funded plan and steer employees toward those providers that are both low-cost and high-quality. You don’t want a bunch of cheep, but sloppy, knee replacements on the books—you want easy, low-cost providers that will get your staff back on their feet quickly!


What Are Some Potential Drawbacks?

Self-funding can potentially save you money, but that doesn’t come for “free”—there is some effort involved, and it doesn’t end right after you switch.

  • Self-funding is more “work” than handing off your plan to a traditional model, but the rewards are so much better. Since you’re customizing your plan more thoroughly, you can keep costs down by improving the health and wellbeing of your employees.
  • Plan on having some dedicated internal resources, like a part-time or full-time hire on staff who can be your self-funding point person. If you’re not willing to take the effort to find and retain this employee, you might be in trouble keeping your plan sustainable.
  • Self-funding requires more strategic planning—which can bleed into your hiring, employee retention and the cost of your provided plans.


Are You Ready to Change From a Fully-Funded Plan?

“I think the key characteristics of a successful self-funded employer is one who has a minimum of 100 employees, a employer who is not adverse to risk (they’re able to assess risk and is able to take additional known risk), and third, they have the cash flow capabilities to administer a self-funded plan,” says Byrne.  “This doesn’t mean it’ll cost them more (it could) but more often it doesn’t.”

Don’t know if you’re ready to make the switch? You can take a quick, informal assessment to see if you’re ready to look into self-funding your benefits plan.

Does your business:

  • Know your level of risk adversity?
  • Want to invest the time and effort to both figure out the best plan and stay engaged with the benefits program in years to come?
  • Want to stop the benefits cost creep every year?



Contact Becky

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