Episode 37: Alice Rhodes Talks How Small Businesses Cut Health Insurance Costs with Self Funding
In this episode of the Benefits Talk podcast, host Chrissy Myers interviews Alice Rhodes, VP of Benefits at AUI, to demystify self‑funded and level‑funded health insurance for small and mid‑size employers. Alice explains that self‑funding means the employer pays claims directly, gaining transparency into claim types, the ability to customize plan design (deductibles, copays, out‑of‑pocket limits), and potential cost savings, while still protecting against catastrophic loss through specific and aggregate stop‑loss insurance. She notes that self‑funding is no longer limited to large firms; plans are now available for groups as small as 10–25 employees, especially when combined with level funding, a hybrid model that offers a fixed monthly premium with the possibility of refunds if claims are lower than expected. The conversation covers common myths (unlimited liability, excessive complexity), the role of third‑party administrators (TPAs) and brokers in managing administration and risk, and how AUI evaluates a client’s situation—reviewing census data, renewal history, and claim trends—to recommend the best option. Practical advice is given: businesses should gather their employee census, past renewal data, and current plan designs, then consult a knowledgeable broker or AUI representative to explore self‑funded or level‑funded alternatives.
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Have you opened up the mail recently, saw your health insurance bill, and went, what in the world is going on? Why is this so expensive? How can I find a better way? There's got to be something that lowers my costs. Well, we're going to talk about that today. We're talking about self-funded plans. Stay tuned. If you're a small business owner, you probably know this moment all too well. You're sitting at your desk, you open up your health insurance renewal and the first thing you think is, how did it go up that much? So you want to take care of your team, you want to offer good benefits, but every year the cost seems to climb faster than your budget does. And eventually most business owners start to think, you know, they start asking the same question, you know, is it really the only way to do health insurance? Is there another way? And the good news is that there are other alternatives. And today I'm talking with Alice Rhodes, VP of Benefits at AUI, about self-funded plans. Alice, thank you for coming on the show today.
Thanks for having me.
So let's start with the basics because this is where most business owners get lost. When someone hears the term self-funded health insurance, what does that actually mean?
Yeah, just hearing it is kind of scary.
It's a very scary word.
Yeah, so in a nutshell, you as an employer, you are now paying your own claims. You're not relying on the insurance company to pay it for you. So rather than just paying a straight premium to the health insurance company, it's broken apart a little bit differently.
Okay.
You pay administration, you pay for a network, but then you pay your claims. So if a claim comes in for $50, you pay it. If a claim comes in for $5,000, you pay it. So you typically get billed a little bit differently. You get a bill for administration and then weekly bills. For claims as they come in.
Okay. So, you know, most business owners that I know that are self-insured, they've been self-insured for a really long time, but people, organizations are starting to move into the space and starting to think about, you know, is there an alternative way? High premium costs, what can I do to bring those costs down? What makes them start asking about self-funding besides cost?
9 times out of 10, it's cost.
Okay.
And the other is probably transparency. They can see what's going on. They're tired of getting a 20% increase one year, a 22% increase the next year, and not knowing why they're getting that increase. Where with self-funding, since you pay those claims, you know what's going on in here. So there's no surprises anymore.
So you can see, you know, these are the types of claims that are coming in. We have someone who potentially has cancer. We have— we're having a lot of different babies being born, we have a lot of individuals that are all on specific types of drugs, so it allows you to make some different decisions around wellness too.
Yes, exactly.
Okay.
If you've, or if you've noticed too that people are using an emergency room as their primary care doctor, you can do some different education to make sure they're doing that. And also, if you notice too that half your people aren't doing their preventative care, you can do some education targeting. You know, what they get in preventative care, there's no cost for it. So just making sure they know.
So more transparency in claims data. You get to see what's going on. You have some cost predictability and some potential savings because sometimes you can negotiate different rates with the carrier. Do you get the ability to customize benefits?
Oh, yes.
Okay, tell me about that.
Yes, so, you know, when you're especially small group under 50, the insurance carrier will tell you your deductible is $500, your maximum out-of-pocket is $7,000. You have $25 copays, your emergency room is $600. Whereas if you're self-funded, you can say, eh, that emergency room's a little bit high. Let's bring it down a little bit and it'll be $300. Or it won't go towards deductible first. Or that $7,000 maximum out-of-pocket is a little too high or too low. You want to see it higher. So you've got, you can pretty much script, we call it scripting, make it however you want to make it.
So you get the ability to kind of write whatever you want.
Yeah.
Within certain rules.
Within, yes. There are certain things you want to do. Like you don't want in-network and out-of-network benefits to be the same. You want some differential between them. You don't want it to be free to go to the emergency room.
So you want to make sure that you're giving good cost drivers to the plan.
Yes, exactly.
Okay.
Yeah.
So I think a lot of organizations, a lot of leadership, they assume that self-funding is only for huge companies. So when does it realistically become an option for a growing business? When should they start thinking about self-funding?
Years ago. Since the dawn of time, you want it to be about 100 lives. And now it's like, I wanna say it's 75% of the groups over 100 have self-funded plans. Now that we've got plans that'll go down to 25, 50 lives, or there's some other options you can look at too that give you a little more security in like level funding. We have those that'll go down to 10.
[Speaker:KRISTIN] Okay, so is there a sign in a company's renewal that signals it might be time to look self-funding or look at other options?
It never hurts to, to look, to explore. Yeah, it never hurts to explore, but especially if you're tired of not knowing what's going on. You know, you've had 2 or 3 years of 20%, 25%, 10%, and you don't know why. There's never an explanation, or, oh, this is the lowest we can go, these are the filed rates.
Yeah, we can't negotiate.
No, we can't negotiate any lower than that, and nobody else— we've shopped it and nobody else looks better.
Are there certain types of companies that benefit more from self-funding than others?
No, no, it's pretty much all over the board. You do want to make sure you've got good cash flow. Okay. Because as those claims come in, you've got to make sure you can pay them.
Okay. So kind of as we're like wrapping up in this question, so thinking about, you know, companies that have as few as 10 employees can look at level-funded plans, I mean, as few as 25 employees can really look at starting to explore those self-funded options. And then some of the things that might want, a company might want to look at self-funding because, you know, they don't see enough transparency in their benefits. They're getting a lot of significant renewal increases and they may not understand why. They know that their group's relatively healthy and so they don't understand why the cost is what the cost is. And so also for companies wanting more data visibility and long-term planning.
Yeah.
[Speaker:CHRISTY] So one of the first reactions that I've seen business owners have is, you know, as it relates to self-funding is they go, wait, does that mean we're responsible for unlimited medical claims? Like what happens if there's a catastrophic event? So let's talk about risk and what protections exist for companies that self-fund. Are they gonna have to pay all of the claims all of the time?
No. Okay. No, so you've got some protections that you wanna look at. There are two different types of stop loss. One is called specific stop loss, the other is called aggregate. So specific is exactly what it says. It looks at a specific person.
Okay.
So, and you can pick, when you look at self-funding, what you want that specific to be. If you want it to be $25,000, then you would be on the hook for the first $25,000 of anybody's claims. If you want it to be $100,000, you would be on the hook for the first $100,000. And then the aggregate protection, that is as a whole.
Okay.
So if something happens and you have 3 preemies in your group that each, you know, had their Specific hits, you know, a lot of, if a lot of people hit that specific, it could be ugly as well. So you, the aggregate protects everybody as a whole. When an underwriter comes up with where they expect your claims to be, the aggregate protection will say, okay, you have to pay no more than 25% of where we expected your claims to be. So if we expect them to be at $100,000, you wouldn't pay any more than $125,000.
Okay. So when you get to that $125,000, then what happens?
Yep.
Do claims just stop being paid?
No.
People don't have coverage anymore?
No. How it works? No, no. Typically what'll happen is you would get reimbursed or there's some things, depends on when in the year it happens.
Okay.
We just had one group get a $70,000 reimbursement because it was some of the claims came through the end of December. Okay. So, but you want, if you want to find a good TPA, which is a third-party administrator, they'll do all that auditing for you. You don't have to keep track of it yourself. Okay.
So having an agent that can walk you through how to build the plan, then you have a third-party administrator who helps administer all of the claims, maintain the plan for you. And then as you're kind of working and putting the guardrails around your plan, you use stop-loss insurance to make sure that you don't go over the aggregate or specific. You have a maximum amount that you're going to fund. You get individual claim protection, which then gives you also that total plan protection. And so the risk is really structured and controlled.
Exactly. The general rule is, you know, 1 year out of every 7, it's—
You're going to have an ugly year.
You're going to have an ugly year.
Okay. Yeah. So, but you know when you're going into your plan year because they talk about what the total maximum is for claims.
Yes.
You can budget.
Yes.
Okay.
Yeah. We, me, the conservative person in me says you want to at least put the money away to pay so you have the funds to pay for your worst case scenario.
Okay. So, it's always important.
Yeah, if you're having employer-employee contributions, you want to base those off of your max.
Okay. Now, there's another option that we talk about with a lot of mid-sized companies called level funding. Can you explain what that is?
Yeah, so level funding is the insurance company, a premium, but it's broken down into different components. So, you still pay a fixed premium every month, but if your claims are better than expected, you can get a portion of that money back.
Okay, so you're funding or you're paying your, your out-of-pocket costs at the maximum level to ensure that you don't have to worry about funding claims throughout the year.
Right, right. And if your claims are better than expected, you can get money back. But if they're worse than expected, you don't owe any more.
Okay, so is it kind of a middle ground between fully insured and self-funded?
Yep, it's like a hybrid.
Okay, why is the model so popular, do you think, right now? Is it because it's just It's set it and forget it. You don't have to worry about cost.
Yes, exactly. You know what it is. It can go down to those groups with only 10 employees that are a little scary to do a more standard self-funded, more traditional.
What are the advantages for businesses that aren't ready for full self-funding? Is it just ease of use?
Ease of use. A lot of times the carriers will do a lot for you that are more your responsibility when you get into self-funding.
Tell me about some of those things that they do for you in the level funding.
So some of the reporting. Okay. And then it's all one, it's all built together. Okay. So your wellness plans, things like that, that you'd have to pay for separately in a self-funded, they're built in more on the level funded.
So what I'm hearing, so level funding is more of a hybrid model of self-funding. It gives you predictable monthly payments. Yes. You get potential surplus refunds.
Yes.
Doesn't mean you're always going to get them.
No.
But you could, and you have lower risk entry into self-funding. Alice, I think I have seen on some products where it's not, they don't necessarily get money back, but they get money towards renewal. Can you explain that?
Yep, so a lot of times for the carriers in order to protect themselves, they want to keep you. Yes, so you have to renew in order to get them the money back. So they'll give it to you in the form of a bill credit.
Okay, almost like a premium holiday.
Yes. Okay. Yeah.
Interesting. So when we start talking about self-funding with business owners, there's always a few myths that kind of show up right away around self-funding. What are some of the biggest misconceptions that you hear?
Oh, they think of it as they have to pay for every claim that comes in, or, uh-oh, you know, well, I've got a baby on the way, you know, what if it's something happens and it's a $500,000 claim, I'm responsible for all of it. So it's just the unknown.
What about thinking that it's incredibly risky? Is that common?
Oh, yeah, definitely.
And then complicated?
Oh, yeah, people definitely think it's complicated because when you look at it, there are a bunch of different parts, which is actually what makes it feasible. Because when you, you know, you pay a separate premium for your specific premium, for your aggregate premium, for your TPA fees to pay for your pharmacy benefits manager. So, it's a bunch of different components that look really scary that you pay all these fees, but it's not.
It's not. And having a broker that can help pull it all together, is that helpful?
Oh yeah, definitely.
Yeah, so understanding that, you know, self-funding isn't just about things for large companies, that the risk can be managed, the administration is handled by experts. So you kind of, while it's, it can be overwhelming when you start to look at it, when you really dig into what the specifics are for the plan, for the policy, to put everything together and create a roadmap, it does give you a lot of control in controlling costs of your benefits, ensuring that your employees have strong benefits. I know that there is more flexibility in a self-funded plan than there is in a fully insured plan. So you've got the ability to kind of make different decisions. So I'd like to pivot from, you know, talking about the plans to really talking about, you know, how AUI can help companies do this. So I think this is where when you talk about how benefits can be so complicated, this is really where having a strategic partner matters. And so how does AUI, how do you, because I know you deal with self-funded plans, help companies evaluate whether self-funding or level funding for them makes sense? How do you walk them through that process?
Oh yeah, me, just as a person, I like to get to know my groups, know what's going on in them. For one, it gives the group some warnings if something will happen, or it's just, you know, it's time that we need to look at it. And sometimes behind the scenes, I'll look at it as an option and then we can show it against what they currently have and say, hey, this really makes sense.
Nice. So what kind of analysis do you need to do for them? Is it similar to when they quote for a fully insured plan? Do they have to fill out Form FIRE? What do they do?
Depends on what they currently have.
Okay.
If they're coming off of a— if they're 15 employees and they're coming off of a renewal that was 40%, then Yeah, it probably helps to do Form FIRE. But if they've got 120 lives and we've got some claims data, then no, we've got everything we need. We just need some help to clean up the census and make sure we have everybody on it, and we can look at some different options.
How do you help clients compare those options?
I like to sit down with them and just kind of explain it all, show them side by side.
Yeah.
Of how, how it looks and, you know, "Look, these are your potential savings if we do it this way versus here, we know we've got a 25% increase and we've got an opportunity for some savings or to get money back." Yeah.
For someone listening right now who's thinking this might be worth exploring, what's the one step that they can take today towards considering self-funding?
Talk to somebody that can show them some options.
Okay. So they should ask maybe their broker or a broker that deals with self-funding?
Exactly.
Exactly. Is there any information that they should be pulling together, like census data?
Or— yeah, they would want their census, their renewals, their renewal history for the past couple years, um, plan designs that they have, um, if they need to make sure that they need a certain network.
Okay. Does knowing renewal trend help for that too, sometimes knowing their past history?
Yes, definitely.
So thank you for being on the podcast today. You know, we close out every podcast with the same question, um, because I'm a book big believer that better business is really important. So, Alice, how can business leaders get 1% better in their business this week?
Ask questions about your health insurance. You know what you have. I've had that happen too. I talked to a group and they don't know who they have or what their plan looks like. So make sure you know what you have. Ask questions to the people that help you with them.
Nice. Thank you, Alice, for your time today. And I'm going to be back with a few closing comments from me about this episode.
Thanks. Thank you.
I want to take a minute today and reflect on some things that I heard from Alice, because I think there's some really important lessons here for small business leaders. First, self-funding doesn't mean that you're on your own, and I think that's one of the biggest misconceptions. What it really means is shifting from paying a fixed premium of an insurance carrier to having more transparency and control over how your healthcare dollars are actually spent. Well, you still have protections in place and things like stop loss and making sure that you have a maximum amount of premium that you pay, but a maximum amount of claims that you pay. And then second, this isn't just for large corporations anymore. So as Alice explained, more mid-sized businesses, especially those with 25, 50, or a few more employees, are starting to explore these options because the traditionally fully insured models, they're not working anymore for them. They're too expensive. And this is something that can fit a company as they grow. Third, I really loved how Alice explained that level funding is the middle ground. It gives businesses the predictability that they're used to with traditional plans, but then it also opens up the door to that potential savings and better insight to their claims that self-funding has. Like, level funding is kind of like the gateway drug to self-funding. And then finally, the biggest takeaway for me is that you don't have to assume that the current model is your only option. Health insurance is insanely complicated, but it's also something that can be designed strategically, especially when you have a partner helping you evaluate the choices. So if your business is growing and your benefit costs are starting to feel really heavy and unpredictable, it may be worth at least asking the question, is there a better way to structure this? And I would encourage you to reach out to the people at AUI to talk about your benefits.
Mm-hmm.
