A growing number of small businesses in New Jersey are finding a new way to save money on their health care costs by switching to self-funded health care plans over traditional health care plans.
Under a traditional plan, employers pay a premium each month and the health insurer pays all of the employee claims and manages the health plan administration. But many small employers have a relatively healthy staff, and employees’ actual medical costs fall far below what the company spends on premiums.
Thus, many employers wonder if they could save money by paying their own employee claims directly, an arrangement called a self-funded health plan. With a self-funded plan, the employer still contracts with a health insurer to administer the health plan, but the employer pays employee medical claims directly. If the employees’ medical claims are lower than expected, the employer may save a significant amount of money.
In the past, self-funded plans were not available to small employers because it was difficult to make a realistic prediction about health costs based on such a small pool of employees. But in the last few years, advances in software have enabled companies to better predict the expected cost of health care for a small number of employees. Now, many insurers are offering new self-funded health plans specifically catered to small businesses’ needs. In fact, UnitedHealthcare recently expanded its All Savers self-funded health plan for small businesses to a much broader range of businesses in New Jersey.
Small businesses that are thinking of switching to a self-funded plan should research the following when shopping:
1. Stop-loss insurance. Self-funded plans carry a risk that the company’s health care costs could skyrocket if an employee is diagnosed with a serious illness or is injured. Companies can protect themselves from such catastrophic costs by coupling a self-funded plan with a stop-loss insurance policy, which protects companies against catastrophic claims that exceed a certain dollar limit.
2. Pre-deductible credits. Many employees may feel that they don’t receive many benefits from their plans because their annual costs are typically less than their deductible, which means they essentially pay for everything out of pocket. But some self-funded plans provide medical credits to help employees cover costs before their deductibles. For example, UnitedHealthcare’s All Savers plans offer a medical credit up to $1,000 that covers medical expenses before the deductible.
3. Innovative wellness programs. Healthier employees naturally lead to lower health care costs. Insurers that offer innovative ways to help employees track and manage their physical fitness can help lower overall health care costs over time.
4. Online cost estimators. Many employees may not realize it, but health care costs may vary wildly among different providers with no difference in quality.. Giving employees the tools to compare the cost of a procedure at different providers may help them choose a lower-cost option.
Self-funded plans have the potential to help small businesses save significantly on their health care costs. The key, however, is to work with an insurer that can provide plenty of tools to help the company minimize its overall health care costs.