Controlling the Cost of Health Claims#
One of the main reasons so many U.S. employers have turned to self-funded plans is that they offer more control in managing health claim costs. Here’s a look at how things work by plan type:
The Traditional, Fully Insured Health Plan#
- Insurance carrier sets a fixed, annual rate for each group
- Employer must prepay this rate no matter how much claims, administration, etc., costs amount to for the year
- Claims are typically automatically paid
- If a health plan’s total expenses are less than what was charged by the carrier over the year, the employer isn’t compensated for these savings – it is the carrier who benefits
The Self-Funded Health Plan#
- Employers work with a third party administrator (TPA) to manage health claims and these bills are paid after services are provided; plan administration fees are negotiated based on the services needed by the health plan
- Claims typically go through a detailed review process to identify any errors, inconsistencies or overcharges
- If a self-funded plan’s total expenses are less than what’s budgeted for that year, the employer is able to funnel these savings back into the health plan
- Employers can see actual claim costs (but no personally identifiable health information), analyze any trends and budget accordingly
How TPAs Approach Claim Review#
As part of the strict fiduciary duty required under federal regulations for self-funded plans, health claims are closely analyzed by the TPAs who administer the plans. These fiduciary duty reviews can result in hundreds to thousands of dollars in savings per claim as they uncover miscoded items, duplicate entries, services billed at higher rates, medical necessity issues and much more.
Self-funded plans eliminate the all-too-common “process and pay” approach to health claims. Paying for claims as they are incurred and doing so by reviewing charges according to federal fiduciary rules is just one way costs are better controlled in self-funding.