Steven owns an IT consulting firm in Austin, and his team has grown steadily over the past few years. With this growth he is now looking for a way to offer health insurance benefits. But as he looks online through the options he thinks are available to him, he feels confused by the terminology and overwhelmed by the choices.
Steven knows he wants flexibility and control over costs, but doesn’t want to take on unnecessary financial risk. Traditional employer plans feel too rigid and come with high financial costs that he is sure he can't afford. He likes the cost profile of a self-insured plan, but he isn’t sure if this option could work for his business.
For Texas small business owners like Steven, self-funded insurance plans can offer a balanced approach to coverage options and his health care costs. These plans give employers more control over healthcare spending and provide potential savings, while allowing the flexibility to customize coverage for their team. Here’s a look at how self-funded health plans work, why they offer control over costs, and whether they might be the right choice for your business.
What Is a Self-Insured Health Plan?
In a self-funded health plan, employers pay for employee health claims directly rather than paying fixed monthly premium dollars to an insurance company. This means Steven’s business would cover health care claim costs as claims arise up to a certain limit each year. Instead of paying a set amount for unused coverage, Steven can keep more money in his business if claims are low.
For many small businesses, this type of plan provides flexibility and transparency over healthcare expenses. Self-funding can be a strategic way to offer benefits while keeping costs manageable and predictable.
Key Components of a Self-Funded Health Plan
A self-funded plan includes a few essential elements that make it manageable and secure for smaller businesses like Steven's consulting firm. There are five main components Steven considered when evaluating whether this plan benefits and structure would work for his team.
Employer-Funded Claims
In a self-funded plan, the employer covers the cost of claims as they occur, rather than paying a fixed monthly premium. For Steven, this means he pays directly for his employees' medical expenses, allowing him to budget only for what’s actually used.
With this structure, Steven avoids high fixed insurance premiums that come with traditional fully-insured health plans. Instead, he has the potential for savings if claims stay low, which can help him reallocate funds to other business priorities while still offering quality health coverage.
Stop-Loss Insurance for Risk Management
The biggest concern Steven had with self-funding was the potential cost if a catastrophic claim came through due to a major illness or accident for an employee. That’s where stop-loss coverage comes into play. Stop-loss insurance coverage protects his business from unexpected large expenses by setting limits on what he’d have to pay.
Here’s how it works:
- Specific Stop-Loss Coverage: If any one of Steven’s employees has particularly high claims—let’s say due to an unexpected surgery—specific stop-loss insurance covers the costs above a certain threshold, keeping his business safe from high expenses.
- Aggregate Stop-Loss Policy: This coverage kicks in if the total claims of the entire team exceed a certain annual limit, meaning Steven won’t pay more than what his business can handle.
Stop-loss insurance caps the risk and matches the risk tolerance for Steven’s business to an amount that he can handle. This type of loss policy could give him the reassurance he needs to manage a viable self-insured health plan without the fear of excessive expenses that could torpedo his annual budget. While this feature is also found in a level-funded health plan, there are differences in the two.
Plan Design Flexibility
One of the benefits Steven found most appealing was the flexibility in designing a self-funded plan. Unlike fully insured plans, where coverage options are pre-set, self-funded plans allow Steven to customize the benefits that matter most to his employees.
For his IT consulting team, this means he can focus on offering coverage they actually need, such as wellness programs or access to specific types of specialists, without paying for unused benefits. This flexibility gives him more control over claim expenses while providing meaningful health insurance coverage that fits his team’s needs.
Claims Management and Reporting Transparency
With a self-funded plan, Steven gains access to detailed claims data, something he doesn’t get with a traditional plan. This level of transparency lets him see exactly how healthcare dollars are spent, offering insights that can help him make smarter decisions about his benefits package when he sees trends in what his employees are needing or a location that might not be in their provider network.
As Steven sees trends in his team’s healthcare usage, he can make adjustments to the plan through the third-party administrator that is his partner in this plan. While it can help potentially reduce unnecessary medical costs, it also helps lower his administrative costs. This ability to monitor and manage spending allows him to create a more efficient and responsive healthcare plan for his business.
Employee Contributions
Like traditional plans, self-funded plans often include employee contributions to healthcare costs. Employees typically share in the cost through payroll deductions for premiums, co-pays, and deductibles. Employees are often more thoughtful in how they seek medical care when their dollars are also on the line for those medical claims that are paid. By having a stake in the cost of care, employees may be more conscious of their healthcare choices. Steven liked the idea that it can lead to more efficient use of services and further cost savings.
Is a Self-Funded Health Plan Right for Your Texas Business?
If you’re a Texas business owner like Steven, self-funded health plans can be a compelling option. It's important to consider a few factors before deciding as these employee benefit plans are not a viable option for every company across Texas.
- Business Size: Self-funding works well for businesses that have a predictable employee population and healthcare coverage needs. For Steven, his growing IT team fits this model well. While they were growing in number, they have consistent, relatively predictable healthcare use.
- Financial Stability: Self-funding requires the ability to manage variable business expenses and cash flow. If your business can handle fluctuations in monthly costs and values flexibility, self-funding may be the right choice.
- Desire for Control and Transparency: Self-funding offers a unique level of insight into claims and spending patterns. If your business, like Steven’s, values transparency and wants control over the cost of healthcare, a self-funded plan provides that opportunity.
Working With Insurance For Texans
By choosing a self-funded health benefit plan, Steven found a way to offer health care benefits to his team while maintaining control over costs. With the flexibility to tailor his coverage and the security of stop-loss insurance, he balanced employee care with budget management. If your business wants a health plan that aligns with your financial goals and employee needs, a self-funded plan may be the answer.
The experienced health insurance specialists at Insurance For Texans help business owners like Steven customize employer sponsored health plans to provide coverage that best fits their unique needs. Our agents start with questions to understand your needs and risk tolerance so that we can match a plan benefit design to your budget and employee base.
Click the button below to explore self-funded health plan options with Insurance For Texans. Let’s find a solution that aligns with your business goals and budget.