The Patient Protection and Affordable Care Act (PPACA) that was passed in 2010 has incited considerable worry and concern among small business owners. PPACA is meant to decrease the percent of the population that is uninsured, and it does this through a variety of provisions that are set to gradually go into effect through 2020.
In 2015, a provision will go into effect that requires employers of 50 employees or more to provide health benefits that meet certain minimum standards. This puts many business owners in a difficult position. For some, it will require enormous expenditures of money to offer health insurance coverage that meets the compliance standards of the PPACA. Employers are trying to handle the issue in a variety of ways, and some are resorting to concepts that are likely to become new trends at small businesses in the coming years. One such concept is that of self-funding.
What is Self-Funding?
Although self-funded plans have been around for years, they are gaining attention with today's emphasis on finding affordable health insurance options that meet PPACA compliance requirements. In a self-funded plan, a company covers the health care expenses of its employees itself instead of relying on an insurance provider. The risk involved in this setup is often mitigated through the purchase of stop loss insurance by the employer. This prevents employers providing self-funded insurance benefits from incurring excessive losses due to healthcare spending.
In the past, self-funding of insurance benefits was commonly seen only at large employers. Statistics still show that a much higher percentage of firms self-fund for health insurance among the large employer demographics than among smaller employers. However, small business owners are particularly susceptible to the financial ramifications of PPACA, and they are thus eager to find novel solutions. Self-funded insurance can work especially well for employers of generally healthy, young employees who are unlikely to need expensive medical treatments. Self-funded plans are less likely to improve the bottom line in the long run at firms that work in fields where high-risk, potentially hazardous labor is common.
The Benefits of Self-Funding
The potential benefits of self-funding are numerous. First, it is noteworthy that self-funded health insurance plans are subject only to federal regulation. Traditional, fully-insured group health plans are regulated by both federal law and by a state's insurance division or regulator. An employer has more options in a self-funded plan and is able to make more decisions in regards to the coverage options provided through company insurance. Another advantage of self-funded insurance is that it is often subject to less premium tax than fully-insured plans. In some situations, self-funded insurance might not be subject to any premium tax at all. In a typical, fully funded insurance plan, employers must pay a premium tax on the full amount of premiums. In a self-funded plan, they are only responsible for such a tax on administrative fees and on stop loss insurance (if they decide to purchase stop loss insurance).
Employers around the country are preparing for the full effects of PPACA and learning how to manage new compliance risk. As a business owner, you should give some consideration to self-funding and healthcare reform. Before making a decision on how you will handle PPACA at your company, develop a thorough understanding of the various options available to you and how much they will cost. Take the time to determine if self-funded health insurance is the best answer to PPACA requirements at your company.
As you plan for the transition to the PPACA, you might find our whitepaper on self-funded plans helpful. Download it today by clicking on the image below.