When Should a Company Self-Fund?
- When it wants to pay for health care that its employees actually use
- When it wants more control over health coverage and more flexibility in designing its plan
- When it wants to know where its health care dollars go from month to month and year to year, and which medical services its members use most
- When it is willing to assume some liability in return for potential savings
Self-Funding Options From Great-West Healthcare
Great-West Healthcare offers 2 ways to self-fund:
- Preferred Funding: Employers pay just a portion of the rate in each of the first 2 months, and then a full (“mature”) rate for the remaining 10 months. The first 2 months are discounted by 75% in the first month and 50% in the second because fewer claims are submitted initially. As a result, Preferred Funding affords special cash flow benefits in the beginning of the plan year. At renewal, the second-year rates remain the same, except for any trend increase (i.e., an increase in the cost of medical products and services) and stop-loss costs.
- ASO Standard: Charges the same flat rate for all 12 months of the first plan year. This is a reduced mature rate, known as an “immature” rate. Employers with ASO Standard pay less per month during the first year, allowing them to more easily budget benefits expenses. Upon renewal, ASO Standard begins billing at a mature rate that is adjusted upward for any trend increase.