Small Business Owners: Take Control of Your Business’ Health Insurance Costs
Business health insurance is a major expense for any small business. Is there a way to reduce the expense and take greater control of your healthcare plans?
Many small businesses are looking at alternative insurance plans, like self-funding. These are similar to what big businesses use, but with options that make them attractive to small companies.
Is Self-Funding for You?
Self-funded insurance plans often let a small company manage costs more efficiently, while at the same time customized benefits to get the maximum use of their business health insurance.
Self-funding is a balancing act for a smaller company. The downside is that it means assuming greater risk. The plus side is saving you money, while expanding the benefits your employees receive.
What Is Self-Funding?
Also called level-funded business health insurance, self-funding is actually managed in a way that is much like traditional plans. In fact, you and your staff will notice very little difference.
The business owner works with the plan administrator to figure out how much money they can afford for annual health expenses for their employees. For many small companies, that ranges between $10,000 and $20,000.
The amount is divided into 12 payments, and the management costs for the plan are added in. From these funds, the plan administrator pays claims submitted by workers directly to healthcare providers.
At the end of the year, any unused funds are returned directly to the business owner. This is the major difference between level funded and fully funded plans. What that means is if your staff submits $6,000 worth of claims, and you are funded at $10,000, then $4,000 is returned to you at the end of the year.
This refund can make a major difference in the financial state of a small company. Is a refund common? According to experts, the average refund is 42%.
Sometimes claims are greater than the money allotted. In that case, your expenses for business healthcare insurance will be more than what you bargained for. But for many owners, the chance to get a refund offsets these worries.
Is It a Good Idea?
If you worry about business healthcare insurance costs and your company has fairly low healthcare outlays, self-funding has definite benefits. Here are three:
- You often get a refund at the end of the year.
- You have access to claims info, so you know what coverage is being used the most. You can increase your benefits in that area the following year.
- You know which employees are using the most coverage.