Stop-loss insurance allows smaller employers to consider this very economical approach to providing employee health benefits because it protects them from large claims ("Is Self-Funding or Fully Insured Right for Your Company?")."
Although self-funding can offer many organizations with the chance to reduce costs there are instances when this option is simply not appropriate. The inappropriateness of the option has a great deal to do with the demographics of the employees. If a company has a significant number of older workers or workers with chronic illnesses, such a plan would not be advantageous. The main reason for the lack of advantage is the likely increase in premium amounts that will occur, particularly if the insurance company engages in lasering.
This type of program may also be inappropriate for extremely small organizations, such as a small convenience store or restaurant. In these instances business owners may not have the income needed to fund such programs or any type of health insurance program.
Basically Self-funded plans are appropriate when the proper research has been conducted and decision makers within the organization believe that it is appropriately. Self-funding is not a type of plan that should be taken lightly because there are serious risks involved if it is not handled appropriately. Decision makers should take into consideration the demographics of their employees and other factors that my influence costs.
Factors Organizations should be aware of Prior to implementing such a plan organizations should have an understanding of the risks associated with self-funding. In addition companies should carefully research the types of self-funded plans that are available and choose the correct one based on the needs of employees and the costs associated with meeting those needs.
According to Gammon another major issue that organizations must consider is the phenomenon known as lasering. This particular practice occurs when an employee has a high number of claims caused by an illness and as a result the insurance company raises the deductable for that employee (Gammon, 2006). Lasering can be avoided by choosing an insurer that does not participate in this practice. However, in some instances companies that does not laser simply place the expense in the insurance premium. In addition in many cases the increase in the premium level is temporary (Gammon, 2006).
Gammon (2006) further explains that timing is also an issue that employers must be aware of. According to the author, timing is a significant issue when an employer decides to switch to a commercial plan. If an organization decides to switch to a commercial plan and away from self-funding, they have to make this change when nothing is happening. If the organization decides to switch when claims are pending the previous claims may be reimbursed. For this reason it is advantageous of companies to set aside at least two months of estimated claim payments. In addition in some cases a third party administrator is needed to process and make payments on claims. If this is the case the third party will need access to the network of doctors associated with the self-funded plan. Since this is the case decision makers must pay careful attention to timing. Finally Gammon (2006) points out that,
"In deciding if self-funding is a good alternative, companies should consider the size of their workforce, insurance executives say. Most executives agree the plans work best for companies with at least 100 workers to spread the risk. .."If you have fewer than 200 employees, you need to understand the makeup of the group and the history," said Jay Fulkerson, president of UnitedHealthcare of Wisconsin,...
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