Advantages of Self Funding
Employers discover the following advantages of self funding their health insurance coverage:
- Elimination of premium tax.
- Lower cost of operation — administrative costs of a professional TPA are significantly lower.
- Carrier profit margin and risk charges eliminated.
- More effective claims processing — TPA's offer controlled and accurate claims processing for each employer.
- Effective cost and utilization controls — TPA's can offer resources unavailable through a traditional carrier, such as a hospital bill audit program.
- Cash flow benefit — the employer's cash flow is improved, due to lower premium costs and the retention of reserve funds.
- Return on investment — Interest on reserves remains under the employer's control.
- Control of plan design — flexibility in plan design and features, and the ability to redesign the plan to eliminate plan abuses.
- Mandatory benefits avoided — State regulations mandating benefits are avoidable under fully self-funded plans.
- Stop Loss flexibility — the employer may choose the amount of risk to retain and the amount covered by the stop loss coverage, affecting the actual cost of the plan.
- Employers with good claims experience do not wind up subsidizing those with bad experience.