Small Companies are Self-Funding Plans


Many small and midsized companies are opting to pay their employees’ medical claims directly, a practice called self-insuring. They do this instead of buying a health insurance policy to cover their workers. This seems to be a great idea because it gives them more flexibility to tailor their benefits for their workforce. Employers that self-fund typically buy stop-loss insurance to protect them if employees have higher-than-expected health care claims.  Now we are talking.  The key is to find a way NOT to work with insurers and create some type of bare bones plan that is a safety net for your workers.  What these companies should do next is find a direct primary care doctor to work with.  They can pay the total monthly fee for their employee or even share in the monthly fee for the employee and their workers would get MUCH better care and MUCH better service.  And the beauty is that it would come as a much lower cost!

Douglas Farrago MD

Douglas Farrago MD is a full-time practicing family doc in Forest, Va. He started Forest Direct Primary Care where he takes no insurance and bills patients a monthly fee. He is board certified in the specialty of Family Practice. He is the inventor of a product called the Knee Saver which is currently in the Baseball Hall of Fame. The Knee Saver and its knock-offs are worn by many major league baseball catchers. He is also the inventor of the CryoHelmet used by athletes for head injuries as well as migraine sufferers. Dr. Farrago is the author of four books, two of which are the top two most popular DPC books. From 2001 – 2011, Dr. Farrago was the editor and creator of the Placebo Journal which ran for 10 full years. Described as the Mad Magazine for doctors, he and the Placebo Journal were featured in the Washington Post, US News and World Report, the AP, and the NY Times. Dr. Farrago is also the editor of the blog Authentic Medicine which was born out of concern about where the direction of healthcare is heading and the belief that the wrong people are in charge. This blog has been going daily for more than 15 years Article about Dr. Farrago in Doximity Email Dr. Farrago – [email protected] 

  8 comments for “Small Companies are Self-Funding Plans

  1. Dr Dave
    August 18, 2016 at 5:14 pm

    This has been around since the 1970’s but the issue is cost. It works out only initially as the company gets more and more engrained they find that staff tend to use the services and the paperwork gets too great so they have to create whole HR medical paperwork departments to track and pay claims and before they know it they save money by outsourcing the whole mess to an InsCo. The suggestion by @DrWally is capitation only without the InsCo involvement and that is a failure from day 1. The entire risk is on the practice and as we know from the 80’s they are a miserable failure when viewed large enough or in the long haul.
    The real only way to properly treat and compensate the society for its care is to revert back to what healthcare was before health insurance and that is pay as you go and use stop gap mega loss coverage for the rest. If everyone had a Health Spending Account (HSA) and NO other source of paying for care (like employer or Medicare or welfare) then the individual would take fiscal and medical responsibility for their care. In so doing they would shop around applying capitalistic pressure to the industry as well as leveraging the things that each person felt most valuable. If someone wants more touchy feely they can shop for it if another wants same day immediate service they can shop for it and if the other wants lowest price they can shop for it. The issue is to have pre-tax money placed into an account by anyone from the employer to the family to even the community and then use that money to buy insurance if they choose or to only buy major medical or buy a concierge membership or pay directly for services on a case by case basis or the like. The funds would be generational and that they would be passed down from person to person and in many cases across family lines.
    Once people started to realize that the funds for care were in fact not infinite and were under their control and finite they would take better care of themselves since exposure is costly as well as monitor their use and abuse for fear of having no funds left. The funds could buy insurance and would be separate from the employer so if one moved jobs the coverage was still theirs and the employers were no longer responsible to negotiate contracts or deal with Insurance companies etc. EVERYONE would buy their own plan and keep it or swap it when they wanted to for life. As long as they were insured they would be exempt from pre-existing issues and they could swap plans at will based on their own use of insurance agencies and reps and like all other insurance sales open to them thru capitalistic means. Support these HSA’s with atleast minimal required major medical coverage that handled hospitalizations surgeries and emergency life threatening issues as well as EOL (End Of Life) scenarios that can tap the entire account in a few days or weeks. This way people won’t go broke with huge medical bills BUT we won’t go broke paying for every single nonsensical “screening” test or procedure simply because….
    We as a society can’t afford to give Carte Blanche coverage to everyone without some sort of responsibility guarantee that the individual will act fiscally and to achieve that we need to put the oneness back on the person so if he abuses things he/she pays. Dr D

    • Doug Farrago
      August 18, 2016 at 9:09 pm

      Great points

    • Judy Harvey MD
      August 20, 2016 at 11:37 am

      In your model, how would a homeless alcoholic with cirrhosis, or an undocumented farmworker with kidney failure, or a working but making minimum wage married couple who just found out they are having a baby find funds for care? Would the United States people have them do without? Is charity care adequate to cover the poverty care in our communities? Not everyone has money at the end of the paycheck to put into an HSA. Shucks, I’m a doctor, I could put tons into an HSA and still go bankrupt with one heart attack or diagnosis of cancer.

      • Dr Dave
        August 21, 2016 at 8:45 pm

        Instead of putting money into insurance directly; companies would put their commitment into an HSA so the employee would decide on the insurance to buy or the coverage they deem necessary. With removing as many steps as possible the cost of care drops since each stage costs someone something. If employers were able to just make a line item addition to each payroll followed by a bulk deposit to the HSA system then they would have more money to actually put in the HSA’s of each employee. No need to negotiate with insurance companies no need to manage premiums and utilization and yet they get the same tax deductions and the employees get better benefits.
        As far as the homeless and underpaid or unemployed they also get an HSA and the amount needed to buy the equivalent of Welfare is deposited to it by the various state and federal agencies. Nothing would change there, except the individual would be responsible to manage the funds so they could choose where the money goes and also would be able to negotiate for care (short of emergent) with providers who were then looking to get/keep patients rather then the current model where we simply work for insurance companies and not for patients.
        Lastly the issue of the illegals is a political one. Should the USA be fiscally responsible for people who have broken our laws and invaded our country simply because we have not done a good job of protecting the sovereignty of our borders? That is not a healthcare question it is a political one
        If the HSA process was implemented then all the charity institutions would be able to actually make a difference rather then the current way. Today if a church or organization or some charity wants to help a family the only way they can is to give them money directly. That requires a level of trust that simply can not be assured. If the HSA however was included they could actually donate money to the HSA knowing that the money can ONLY be used for healthcare and not for illegal drugs or TVs or the like. The funds could go to buy insurance of the person’s choosing and that way could be continuously covered not risking the evil pre-existing exemption.
        The issue is we need to stop looking to solve the few by penalizing the many. The suggestions of the unemployed and underemployed and the illegal aliens and the like are in the minority but we have been forced to see them as the major issue in the nation when in reality the issues that need to be focused on are the hundreds of millions who are now in trouble with premiums going skyward and utilization near all record levels. Fix the many then come back in and fix the few
        It reminds me of the old story about trying to pack 10 pounds of rocks 10 pounds of gravel and 10 pounds of sand into the same bucket. If you put the sand in first then the gravel there won’t be room for the rocks. If you put the rocks in first and shake the bucket and then add the gravel and then the sand all 3 will fit in well. We need to stop worrying about the sand before we pack in the rocks and gravel
        We have at most 10 more years of current conditions in order to fix this before the entire healthcare financial system collapses right now watching it flounder is not the correct approach
        Supervised neglect they call it
        Dr D

  2. Norman Davidson
    August 17, 2016 at 1:15 pm

    These arrangements provide a more direct linkage and accountability between and among the employer, employee and the health care providers that render care. All positive attributes of insurance companies such as claim payments, health spend tracking, and quality metrics can be built into the structure. Game on.

    • Doug Farrago
      August 17, 2016 at 1:25 pm

      Quality metrics? I would be out.

  3. DrWally
    August 16, 2016 at 4:19 pm

    We do direct primary care with several commercial entities in town. Anywhere from 500-1500 employees each.
    They are self insured and we offer a dollar amount per month per member. They are guaranteed that they are seen the day of the call, no co-pay for the member, all simple procedures are included, labs and x rays at cost plus 10 %. We are on call for all questions 24/7. We have full service in house pharmacy and the company is billed at cost plus 10% for any drug.
    The employees and the company brass love it. How could it get any better?

    We have a lot of amish who we also offer DPC. They have church reimbursement for hospital stays, so they love the out patient plan also.

    Food for thought for all. Maybe approach folks in your town or city to see if any interest in
    self insurance.


  4. Pat
    August 16, 2016 at 7:54 am

    But can they still participate in ACO’s? What about quality incentives? How will they be able to establish Patient-Centered Medical Homes?? ????????????

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