Self funding is not for everyone. Every company, however, should evaluate their present basis of funding medical claims and then take a hard look at cash flow. There are a least three financial reasons to consider self funding.
CASH ACCUMULATION: When a self funded plan replaces an insured plan, the carrier usually continues to pay claims already in process as well as claims incurred but not reported prior to contract termination. These claims are paid out of reserves accumulated from insurance premium payments. Thus there is a time lag until the self funding employer has to pay new claims. During this period, he can set up an internal reserve to cushion monthly claim fluctuations or other liabilities.
"GOOD" YEAR BENEFITS: The effect of good claims experience are felt immediately - avoids overpayment of premium.
LOWER COSTS: Many self funded employers experience lowered costs in a variety of areas such as:
- Being relieved of the need to pay premium taxes in most states
- Improved efficiencies in claims processing by controlling administration
- Elimination of risk charges
- Ability to eliminate many state "mandated" coverages required of insurance companies
- Flexibility of plan design; tailored to your specific needs and goals