SOURCE: Business Benefits

September 17, 2007 20:27 ET

Smaller Companies Can Self-Fund Health Insurance, Business Benefits President Writes

ANDOVER, MA--(Marketwire - September 17, 2007) - "Smaller companies can benefit from self-funding health insurance, but too few take advantage of it," says James Edholm, president of Business Benefits, Andover, Mass.

Self-funding really means partial self-funding, he writes in "Most Commonly Asked Questions about Health Insurance Self-funding," appearing in the current issue of Benefits & Compensation Solutions Magazine.

"You partner with an insurer. You pay the smaller claims and let them pay the larger claims that no one can afford," he writes.

Eighty percent of groups overpay for health insurance so as to subsidize the sickest 20% of groups. If you prefer to pay your own way and carry a bit more of the risk for your group alone, self-funding works.

"If your employees are younger or healthier than average, or if you're a risk-taker by nature, then self-funding could be attractive," he says. "You'll almost always save money the first 12 months."

"You save on premium taxes, which are only levied on a small portion of your costs instead of your total premium. You can custom-design your plan and directly save from disease management and other salutary practices," Edholm says.

Companies as small as 25 employees can potentially self-fund, and even smaller companies can create a "do-it-yourself" self-funding.

Stop-loss insurance policies limit your risk to an acceptable level. For a fee, an administrator pays claims, using your money, and a stop-loss carrier covers risks above a certain level. When any one claim reaches a trigger level the administrator begins using insurance company money.

You can buy "specific stop-loss" insurance policies to cover catastrophic claims. That policy will stop one person's misfortune from ruining the entire plan's experience.

You can also protect against the total cost of a large number of smaller claims with an "aggregate stop-loss" policy. You'll always know in advance how much your plan will cost in both the worst-case and best-case scenarios.

Your cash flow can fluctuate significantly, so maintain adequate reserves, he counsels. Moreover, the aggregate and specific stop-loss policies' contractual provisions can cost you more than planned, if poorly chosen. Some brokers try to make self-funding look good by providing limited-protection policies, which reduces fixed costs. By lowering costs that way they look good initially, but you may be hurt at the end of the contract year, he says.

"Properly planned for, self-funding can work for companies of surprisingly small size. Find a good broker and evaluate your alternatives. This is a tool you shouldn't ignore," Edholm concludes.

Edholm is President of Business Benefits Insurance (BBI), an employee benefits planning firm in Andover, Mass. He has worked with employers for more than 25 years and can be contacted for further information and/or an interview via his website or by contacting Ken Lizotte at 978-371-0442 or

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