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CASE STUDY

Transition to a Self-Funded Health Plan

Mid-sized businesses often face rising health insurance costs and have limited information to make educated decisions. A self-funded plan design can help them lower expenses and make better-informed, more successful changes to their medical plans. 

Company profile:

A Dallas-Fort Worth manufacturing company with 180 employees faced annual premium increases for its medical plan.  The information available to influence their claim experience was limited in their fully insured plan design. 

The challenge:

Premiums strained the budget.  The HR Director, CFO, and company owners identified several pain points with their fully-insured model: 

  • Lack of transparency: Little insight into how premiums were being spent or the actual claims experience of their employee population. 
  • No control over plan design: The carrier dictated plan designs, leaving little room for customization.
  • Lost opportunity on good years: Low-claims years did not result in lower premiums or refunds. 
  • Limited influence on cost drivers: Without data, it was impossible to identify and address specific health issues driving costs. 

Decision process 

Working with SGL Partners, the company formed a committee of HR, Finance, and key leadership to evaluate self-funding, focusing on:

01
Risk assessment

Understanding exposure of self-funding and securing stop-loss insurance to protect against catastrophic individual or aggregate claims.

02
Administrative burden

Evaluating the need for a Third-Party Administrator (TPA) to handle claims processing, network access, and member services.

03
Cost-benefit analysis

Comparing historical claims (requested from their carrier) to projected self-funded costs, factoring in stop-loss and TPA fees. 

04
Flexibility and customization

Investing in employee well-being contributes to long-term cost savings by promoting healthier habits and reducing claims.

05
Employee communication strategy

Planning how to explain that benefits would remain consistent in quality and access, with only the funding model changing. 

After consultations with other self-funded companies in similar industries and receiving multiple TPA and stop-loss quotes, the committee and ownership recommended the transition. Robust stop-loss coverage eased concerns about risk, and the potential for long-term control and savings drove the decision.  
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Implementation 

The company, with the assistance of SGL Partners, executed the self-funded transition methodically: 

  • They partnered with a TPA known for its strong provider networks, excellent customer service, and robust data analytics capabilities. 

  • The company secured both specific stop-loss (protecting against individual claims exceeding a certain threshold, such as $100,000) and aggregate stop-loss. 
  • Working with the third-party administrator (TPA), the company introduced a new preventive care benefit for high-cost chronic conditions and enhanced telemedicine options to help manage long-term costs. 
  • The HR team hosted town hall meetings, distributed clear FAQs, and created a dedicated intranet page explaining the change. The key message: "Same great benefits, smarter way of funding, potential cost savings."  
  • The finance team established a segregated account to fund anticipated claims and TPA fees, ensuring liquidity. 

Results and impact

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Challenges faced:

  • Learning curve: HR and Finance experienced a learning curve in understanding the intricacies of claims data, stop-loss mechanics, and TPA management. 
  • Volatility concerns: Ongoing cash-flow vigilance due to variable claims, even with stop-loss. 
  • Communication nuances: Consistent, clear messaging to ensure employees understood that benefits wouldn’t change in practice. 
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Key takeaways:

The company’s successful transition to a self-funded health plan empowered them with control, transparency, and the ability to proactively manage their healthcare spend for the long term. 

Do your homework

Research risks, potential savings, and stop-loss. 

Partner wisely

Work with an experienced benefits advisor and reputable TPA with strong networks, service, and reporting. 

Understand your data

Request historical claims from your carrier for accurate projections and strategy. 

Embrace flexibility

Tailor benefits to workforce needs and health goals. 

Manage risk

Always maintain adequate stop-loss coverage. 

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