What Is a Self-Funded Health Plan If Not Insurance?

Believe it or not, more than half of the American workforce with some sort of health coverage is covered by a self-funded plan rather than traditional group health insurance. Plan administrators, like Nevada-based StarMed Benefits, are quick to point out they aren’t insurance companies. But if self-funded plans aren’t insurance, what are they?

StarMed Benefits describes its health plans as low-cost alternatives to traditional health insurance. Through their plans, employers are able to offer employees different levels of coverage ranging from basic care to the equivalent of major medical.

An Alternative Model

Self-funded health plans are billed as alternatives to traditional health insurance because they are based on an alternative model. The insurance model is pretty simple. Insurance companies charge customers premiums they turn around and invest to generate profits. Meanwhile, they negotiate with hospitals, doctors, and other providers to pay for services rendered.

Both employers and employees pay static annual premiums. Those premiums do not change in a given year regardless of how much an insurance company spends to reimburse healthcare providers.

A self-funded health plan completely eliminates insurance companies from the equation – at least where employers and employees are concerned. Employers pay a flat rate for access to the same traditional network services insurance plans provide. They may choose to cover the entire cost themselves or share it with employees.

A Cheaper Model

Self-funded plans offer employers more control over their healthcare expenditures by letting them pick and choose the services they want. As a result, most self-funded plans are cheaper than traditional group insurance.

As an example, StarMed’s least expensive plan seems to give employees unlimited access to telemedicine. But it only covers one annual in-office well visit. Structuring the plan this way gives employees access to primary care but allows employers to control their costs.

In many cases, major medical self-funded plans come with fairly high deductibles. That’s another way costs are controlled. Self-funded plans generally only cover individual employees out of the box. Adding family members incurs an additional monthly fee.

A Compliant Model

It is important to note that self-funded health plans are compliant with ACA requirements. Employers and plan administrators must also comply with all applicable ERISA rules.

Employers need to know this because one of the false claims frequently made by critics of self-funded plans is that they do not comply with federal law. That is simply not true. Employers, plan administrators, and service providers all must still follow the law.

An Adequate Model

Finally, self-funded health plans are based on a model that provides adequate services to employees. Plan subscribers are not left out in the cold paying monthly premiums but getting nothing in return. To illustrate the point, let us go back to StarMed Benefits.

Their least expensive plan is a basic plan best suited to smaller companies and the self-employed. It offers, at minimum:

  • In-office primary care visits
  • Outpatient testing and lab work
  • Urgent care visits
  • Chiropractic and vision care
  • Prescription discounts of up to 80%.

All of this is offered without any deductible. Of course, there are limitations and rules. But that’s true of any health plan, whether self-funded or provided through group insurance. A health plan without rules and limitations isn’t sustainable for long. That’s why the rules and limitations exist.

In its most basic form, a self-funded health plan is just another way to provide employees with healthcare benefits while doing so at a cheaper cost. Lower costs are due to employers having more control over the benefits they provide and how much they are willing to pay for them. That’s really about it.