Four self-funded benefit plan misconceptions that could be costing employers

One of the most common myths in the industry is that self-funding is only an option for large employers, Murray said.

"While it's true that many large corporations self-fund their benefit offerings, the industry has evolved to make this an option for small and mid-sized businesses as well," she said. "In fact, self-funding is becoming more attractive with this group, with data showing 25% of covered workers in smaller firms are now enrolled in a self-funded plan."

A type of self-funding, called level-funding, may be an option for brokers to introduce to small and midsize clients, Murray said. In a level-funded plan, an employer makes a predictable monthly payment that covers administration, claims and stop loss insurance. These plans often cost less, making it easier for smaller employers to offer quality health benefits at an affordable price. They are also growing in demand, with interest in level-funding jumping to 38% among small employers (2 to 49 employees) and 49% among midsized groups (50 to 499 employees).¹

Fixed monthly premiums may lead many employers to believe fully insured plans are more predictable than self-funded plans, Murray said. While premiums remain stable during a plan year, long-term costs can be far less predictable. Medical trends, regional utilization patterns and prescription drug costs factor into renewal rate increases, meaning employers with relatively stable claims can still face significant premium increases at renewal.

"Self-funded plans are often perceived as riskier because claims can fluctuate from month to month, but they actually give employers greater transparency into healthcare costs," Murray said. "Instead of prepaying a carrier for coverage, employers pay for the claims their employees' file. With stop loss protection in place, they can limit exposure to large claims while gaining insights that help them manage costs more effectively."

Level-funding can provide additional stability for small and midsized businesses, she said. It combines fixed monthly payments with many of the savings opportunities of self-funding, giving employers predictable cash flow, stop loss protection and the potential for a refund if claims run lower than expected.

Another common misconception Murray said her team hears frequently is that self-funding is too risky, particularly for smaller businesses.

"Many employers view self-funding as too risky, but that perception often overlooks the protections built into today's self-funded plans," Murray said. "With the right strategy, employers can effectively manage risk while gaining greater transparency into healthcare spending."

Self-funded plans are often paired with stop loss insurance, Murray explained, which protects against unexpectedly high claims by limiting an employer's financial exposure. Murray described the coverage as a safety net against higher-than-expected claims.

"Self-funding isn't about going it alone," she said. "From stop loss coverage and claims monitoring to funding reserves and data-driven plan management, employers have multiple layers of protection available to help manage volatility. Brokers can help their clients partner with carriers like Nationwide that have a long history in this industry, ensuring they have the strength and stability to keep their promises."

Another common myth is that self-funding is primarily a cost-cutting strategy.

"While savings are often part of the conversation, many employers are drawn to self-funding because it offers greater flexibility, transparency and control over their benefits program," Murray said.

Self-funded plans give employers access to claims data, helping them better understand how they spend their healthcare dollars. That visibility allows them to make more strategic decisions about plan design, vendor partnerships and health management programs, aligning benefits more closely with employees' needs, Murray explained.

"Whether it's improving access to behavioral health services, supporting employees with chronic conditions, enhancing care navigation or expanding preventive care resources, brokers can help their clients design benefits that address real employee needs rather than relying on a one-size-fits-all approach," Murray said. "The result is a benefits strategy that not only helps manage costs but also drives engagement, improves health outcomes and delivers a more personalized experience for employees and their families."

Balancing today's economics with modern employee expectations is no longer just about individual products, costs and coverage, Murray said. Instead, it's about helping employers create employee experiences that are financially sustainable and centered on the needs and well-being of their employees.

"It's important for brokers to talk with their clients to truly understand their goals so they can anticipate their needs and recommend solutions that fit their journey," Murray said. "While self-funding comes with a lot of misconceptions, helping break those down with your clients can ensure they're not missing out on an opportunity that could help them - and position you as a trusted partner that can help them achieve their goals."

Nationwide offers resources to help brokers demystify self-funding and level-funding, including this webinar. Brokers looking for more information on Nationwide's Self-Funded Program, including its key benefits and advantages, can visit www.nationwide.com.