Self-funding a workers compensation plan is an alternative that enables employers to control rising workers compensation costs. Employers can achieve savings of up to 40% by self funding.
Most self-funded or self insured employers want flexibility in making key decisions on benefits, administration and funding, yet need to limit their liability. Self Funding your workers compensation or Self Insurance of Workers Compensation Plans is an attractive alternative to the fully insured workers compensation plans for employers who wish to save money and to be flexible. Many employers are looking to obtain reasonably priced workers compensation premium. Self Funding provides a reasonable alternative to fully insured workers compensation plans. Also, for contractors with good safety records, self funding workers compensation can save money but there are other advantages as well.
The benefits of Self Funding your workers compensation program are:
- lower fixed operational costs
- setting aside reserves, which if not used the employer keeps
- savings up to 40%
- Self funded plans can be supplemented by loss control and safety programs.
- Lower monthly costs and premiums
- Flexibility in budgeting
What is a Self-Funded / Self-Insured plan?
A self-insured workers compensation plan, is a workers compensation plan in which the employer assumes partial financial risk for providing workers compensation benefits to its employees. The employer decides on a plan of benefits, which can be similar to or identical to the employer’s current fully insured plan. Rather than obtaining workers compensation coverage from an insurance carrier, the employer elects to fund the risk up to a certain level where a Reinsurance or Stop Loss Insurance carrier is brought in. The Stop Loss is designed to limit the employer’s loss to a specified amount, to ensure that large, or unanticipated claims, do not upset the financial integrity of a self-funded workers compensation plan. A TPA administers the plan. Their responsibility includes maintaining eligibility, customer service, adjudicating and paying claims, preparing claim reports, and more.
Self Funding – A Comparison to Fully Insured Plans
Basically, everything that is provided in a conventionally fully insured program is duplicated in the self funded plan. Everything that the insurance company does when it offers a conventionally insured program takes place in the self funded program. The difference is that with the self funded plan the employer holds the cash needed to fund benefits, and instead of sending the fully conventional premium to the insurance company, only a small fraction of the conventional premium is sent in to a reinsurance carrier. The employer purchases re-insurance for protection,holds the remainder of the conventional funds (claim funds), invests them, segregates them if desired, or uses them for general business purposes until they are needed for the funding of claims. The employer retains and keeps the funds when claims do not materialize, hence making a profit.
Improved Cash Flow
Moving from a fully insured plan to a self funded plan usually results in about 3 months of relatively little new claims. During this time, the previous fully insured carrier is still paying claims incurred prior to the new self funded plan year. This claims lag allows your new Self Funded plan the opportunity to build and establish a reserve to pay future claims. Also, reserves for claims are held by the employer and only released if claims materialize, resulting in an improved cash flow for the employer.
Claims Experience – Immediate Realization of Hard Dollar Savings
Under a fully insured program, if an employer’s experience is “better than expected,” the insurance company gains financially and makes an unexpected profit. The insurance carrier does not refund the excess profit to the employer.
Even if an employer had good experience, the insurance company will still pass on a renewal based upon the insurance companies pool of thousands of groups. You are not truly rated based upon your claims experience and can be treated unfairly.
With Self Funding your renewals are based on “YOUR” companies claims experiences, and it is not based on thousands of other companies that have no relation to your company or industry. You, the Employer, not the insurance company enjoy the advantage of favorable claims experience. You, the Employer, keep the savings.
Improved Employee Satisfaction- Personalized Employee Service:
Third Party Administrators specialize in one thing, Customer Service. Their sole purpose is to provide the best quality service possible, and to personalize that service to members. This includes dedicated account representatives who know not only the employer’s account but the individual employees of each company. Employee’s and HR get on a first name basis with claims examiners, and are not transferred to a random person that does not know anything of the employee or the employer.
Lower Costs of Operation:
Third Party Administrators have lower overhead and expenses than a fully insured plan, which result in an immediate direct savings for the employer, when switching to Self Funding.
Claim Utilization and Cost Controls
Third Party Administrators review utilization of the plan and benefits and see where the employers claims and costs are. This allows the employer along with the TPA to make informed decisions as to plan benefits, costs, and any adjustments that need to be made. TPA’s can also implement unique programs safety and other cost saving programs to lower the costs of the workers compensation program and to reduce claims.