Self-Funding with Stop-Loss:
Advantages and Disadvantages
Advantages:
- Cost savings and improved cash-flow
- Transfer risk through prudent purchase of stop-loss
- Reduction in state premium taxes (in most states) and carrier profit margin
- Greater flexibility in plan design and elimination of most or all state mandates
- Greater potential for employee engagement
- Ability to evaluate each component of the plan separately
- Vastly increased knowledge of the plan, claims experience, and component costs (HIPAA protected).
- Ability to install wellness, biometrics and other cost-containment initiatives to reduce claims costs on a direct basis
- A greater ability to save money through the use of telemedicine
- Greater ability to create special networks, Centers of Excellence, and medical tourism (perhaps even within the immediate area)
- Ability to use Reference Based Pricing and Value Based Insurance Design to reduce cost
Disadvantages:
- While historical experience and actuarial projections can increase overall predictability, monthly cash obligations to fund claims will fluctuate.
- More employer engagement required to manage plan and optimize effectiveness
- Requires long-term commitment
- Must create and hold reserves for year end run out or plan termination
- IRC ยง105(h) discrimination testing applies
- Wellness and biometrics (if instituted) might cause employee morale issues if not handled correctly
- More technical expertise required on the part of the adviser/consultant
- Alternative fully insured and stop-loss markets might not be available later if there is severely adverse claims experience
- Somewhat increased reporting requirements.
- Stop-loss coverage can be more price sensitive to on-going claims than a fully insured plan.
