How to Provide a Self Funded Health Insurance Plan

A self funded health insurance plan can provide flexibility to both employers and employees. It allows employees to set aside cash for qualified purposes such as uninsured health care costs and the employees' share of premiums and co-pays for medical, dental, vision coverage and prescriptions. Such plans usually have tax benefits for employees. Administering such plans is now a normal function for most payroll services.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Full-service payroll services company or other plan administrator

Provide A Self Funded Health Insurance Plan

1. Ask your payroll services company to provide you with the information, brochures, proposals and boilerplate materials it may have for administering a self funded health insurance plan for your employees.
2. Consider designating your payroll services company as the plan administrator for your self funded health insurance plan, or ask your accountant to suggest other plan administrators in your area.
3. Convene a meeting including your human resources manager, your accountant, a representative of your payroll services company or plan administrator and your in-house accounting staff to clarify the responsibilities of each for administering your self funded health insurance plan. This includes handling transactions, providing information to employees and maintaining your employees' cash asset accounts
4. Check with your accountant and plan administrator to determine the maximum limit that each of your employees may set aside each year in a self funded health insurance plan. Allow each employee to fund his own account through voluntary payroll deductions in any amount up to that ceiling.
5. Create a written document, using a template that your receive from your plan administrator, that summarizes and explains the self funded health insurance plan to your employees. This document must spell out qualifying purposes for which funds may be disbursed, the period in which disbursements may be made for each calendar year and the maximum level at which an employee may fund the plan.
6. Disburse cash to an employee from his self funded health insurance plan against receipts, documentation or requests for the qualified purposes allowed under your plan.

Tips & Warnings

• Some employers use the same structure and plan that they establish for self funded health insurance plans. This allows employees to fund their dependent care expenses.
• Make sure that your employees understand that the fact that uninsured medical expenses are funded through their self funded health insurance plans does not automatically define them either as excludable from personal income or as deductible for tax purposes. Deductibility, for instance, may depend on whether an employee itemizes deductions and whether his medical costs meet the IRS threshold for medical expenses deductions.