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Two Reasons Why Owners Avoid TPA Services (And Why They’re Wrong)

by Tim AustinNovember 8, 2017 8:00 AM

When it comes to finding the right health plan for your business, the key is to find an option that makes sense for your business. One route that a business can go is to invest in TPA services for a self-funded health plan, which offers several benefits that can help owners save money and mitigate their risk with proper planning and support. Self-funded insurance also allows businesses to avoid some of the increased regulations on healthcare, which is a big reason why more small and midsize employers are choosing to self-insure, according to the Society for Human Resource Management.

With all that in mind, self-funding sounds like an intriguing option, right? However, there are a pair of misconceptions about self-funding that either dwell in the past or are not that relevant to business owners. Here are two reasons why owners avoid self-funding, and how a TPA can dispel those arguments.

Image of a business owner considering self-funded health insurance through TPA services.

Myth No. 1: Self-Funding Will Sink Small Businesses

Some business owners remember stories about a company sinking because they went self-funded. What essentially would happen is that a business with self-funded insurance would run into a large number of costly claims after one or several employees got really sick. Because they were self-funded, the business would theoretically be stuck paying all of those claims without any help from a provider, which would force them to shut down since they wouldn’t have the cash flow to actually run their business and pay their other bills.

While businesses back in the ‘70s and ‘80s did run into this problem, times have changed. Businesses can now invest in something called stop-loss insurance to manage their risk and set a maximum liability number for their yearly claims. 

Stop-loss insurance allows a business to mitigate its liability so that it can self-fund its insurance without having to fear a year with an unexpected number of claims. Let’s just say that your business is given a $10,000 monthly maximum through stop-loss insurance. At the end of the year, that’s $120,000 max. If your business exceeds $120,000 in claims in a year, you’re reimbursed the overage by the reinsurer.

This policy also works in your favor if you have fewer claims than expected. If you don’t reach your maximum claims liability number, you simply get to keep the difference, or you can take advantage of a “premium holiday.” This allows you to use the refund to pay for one or several insurance premiums in advance. Since the refund could affect your tax filings, this option can help you avoid having to do a tax adjustment on your healthcare fees since we’ll just deduct your refund from the premiums for the following year.

Myth No. 2: Self-Funding Makes Owners Deal with Several Moving Parts

As we’ve mentioned before about self-funding, “normal businesses with fewer than 5,000 employees won’t have the infrastructure to comply with all the regulations and make it financially feasible.” Managing a self-funded plan can mean carefully overseeing several important moving parts. This means that you’re going to need some help because self-funding can be a lot of work for whomever oversees their HR.

While some owners may be scared off by self-funding, there’s a simple solution to these moving parts: a TPA. What we can do as a PEO with TPA services is manage everything in house so that you can benefit from self-funding without having to deal with all the regulations and administration needs, which can include: 

  • Electronically sending out a file on health plan eligibility every day
  • Having an in-house programmer who can receive necessary data files
  • Access to a pharmacy benefits manager, who works with pharmacies on plan eligibility and drug costs

Those are just a few of 30 moving pieces that are necessary for self-funding. When you work with a TPA, we can be as transparent about this process as you’d like so that you can see how everything works, or you can let us take care of the work while you focus on other important matters. Regardless of how much or how little you want to know about the process, a TPA enables you to take the HR work out of your hands. This way they can sign up for self-funding, pay their premiums, and know that the work is being done for them.

Using TPA Services to Self-Fund Your Business

The key to a good self-funded plan is a TPA that can take care of all the moving parts for your business. As a Professional Employer Organization that offers TPA services, Group Management Services can allow you to enjoy the benefits of self-funding while managing your plan. Contact GMS today to talk one of our experts to learn more about self-funding and to get a quote for your business.

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