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The Creative Approach to Health Insurance Your Nonprofit Should Consider

by Scott Schnapp

Health insurance is likely one of the largest line items in your organization’s budget and therefore presents one of the best opportunities for meaningful savings that can be reinvested in your mission.

Self-funding health insurance–the practice of an organization paying for individual employee health claims out of pocket instead of paying a monthly fixed premium to a health insurance carrier–provides larger nonprofit organizations (fifty or more employees) a creative solution, and case study evidence demonstrates the potential for huge reward.

Why is self-funding favorable under the Affordable Care Act (ACA)?

ACA contains several provisions aimed at potential abuse and profiteering by insurance companies. Since self-funding is, by definition, nonprofit and frugal, and the tough ERISA fiduciary laws already carefully monitor and require extensive transparency and reporting, ACA provisions won’t be a factor. The many punitive fees, limits and restrictions imposed on insurers are not imposed on nonprofit self-funded plans and neither are the new Medical Loss Ratios (MLR), state rate reviews, etc. Since the passage of ERISA in 1974, self-funding & Third Party Administrators (TPAs) have been obeying the intent of the new ACA law and therefore, no new restrictions are added.

What are the advantages to self-funding?

  • Custom Design: The ability to custom-design the plan to give workers benefits that best fit their wants and needs. A great health insurance plan is a major factor in the recruitment and retention of employees and custom design allows employers much more “bang for the buck” in the types of coverage offered.
  • Cost Containment: While no employer can ensure medical claims are low, employers can implement wellness initiatives that are proven to be effective and reduce health care costs. Any successful self-funded plan must include a good wellness program which increases staff productivity, health, and morale.
  • No Dumping: When the ACA first passed, many speculated that employers would save money by dumping their employer plan and steer workers to government exchanges. Employers now recognize that doing so would be personnel recruitment and retention suicide. Self-funding gives large employers another option beyond what is available on commercial front.

Isn’t self-funding risky?

A well-designed self-funded plan mitigates risk with a strong stop-loss component. If an unexpectedly large number of employees get seriously ill, their medical bills could wipe out the entire medical fund or require payments beyond the employer’s ability to pay.  Stop-loss health insurance can help guard against this risk. Stop-loss insurance pays your employees’ medical bills after you have paid a certain predetermined amount, which caps your organization’s liability. A knowledgeable broker is an essential partner in establishing a self-funded plan.

A values alignment

As proponents of individual and community health, nonprofits are a good match for self-funding which reinforces and rewards wellness and prevention.

Ultimately, whether self-funding is the right choice for your organization or not, going out to bid every year and considering alternative health insurance arrangements are steps all nonprofits should take as best practice. As mission-driven organizations, nonprofits must strive to keep as much money as possible focused on the work, and while there are inevitable – and important – overhead expenses, nonprofits must not treat exponentially rising health care costs as a given.

If you’re interested in learning more about self-funding your organizations’ health insurance, including testimonials and case studies, contact Scott Schnapp at 207-871-1885 or SSchnapp@NonprofitMaine.org. 

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