Self-funding is a proven, cost-effective method for providing employee benefits.
With a self-funded medical plan, an employer puts money into a trust (PEHP) to pay claims. Any money that isn’t used to pay claims is returned. It’s unlike fully insured arrangements, where the insurance company keeps the difference (profit).
Self-funding is the choice of most large employers. Reports show about 85% of employer health plans use some form of self-funding. Employers choose self-funding to control costs, save money, and customize benefits.
Here are some more reasons so many employers choose self-funding:
No Profit Margin or Risk Charge » The profit margin and risk charge of an insurance carrier are eliminated through self-funding. Typical profit margins and risk charges are about 4%, but can be higher or lower depending on various factors.
Low Administrative Costs » Self-funded plans have lower overhead and administrative costs than fully insured plans. PEHP’s administrative costs average about 5% of premium, whereas the largest insurance carriers in Utah average about 15%. This is a significant savings, especially over time.
Tax Savings » There is no premium tax on claim expenditures, which can mean considerable savings over fully insured plans.
Earn Interest » Any money you have in reserves earns interest — it’s your money held in trust.
Pharmacy Savings » Fully insured carriers keep any pharmaceutical rebates and pass along minimal prescription drug discounts to employers. With PEHP, rebates earned or discounts received are passed on to you. Last year PEHP received more than $10 million in pharmacy rebates and paid it all back to the risk pools that earned them.