Fully Insured vs Self Insured: An Employer’s Ultimate Guide
Fully insured vs self-insured health plans: fixed premium vs. direct funding, carrier vs. employer risk, & flexibility.
An Overview of Fully Insured vs Self Insured
As an employer, providing health insurance to your employees is a critical aspect of attracting and retaining top talent. However, with the ever-increasing cost of healthcare, finding the right health plan can be a daunting task. Fully insured and self-insured health plans are two options that employers can choose from.
In this article, we will explore the differences between fully insured vs self-insured health plans, along with key insurance terms such as third-party administrators (TPAs), stop-loss insurance, benefit design, group health, medical claims, insurance carriers, funded plans, financial risk, and who is responsible for paying.
What is the difference between a fully insured group health plan versus a self-funded health plan? In the fully insured version, an employer pays a premium to a health insurance company. This premium is determined by the insurance company underwriters and usually doesn’t give the group any pricing transparency or little credibility. Regardless of how much money the group incurs in claims each year, the premium is paid and there is no opportunity to receive any of that money back in the form of a surplus. Why is this important? If a group has a “light” year of claims, the insurance company keeps the unused premium dollars that were not allocated to claims payment.
Self Funded Insurance: A Close Look
Self-funded insurance is a type of health plan in which the employer takes on the financial risk for providing healthcare benefits to its employees. Rather than paying a premium to an insurance carrier to assume the financial risk, the employer can set aside funds to cover the cost of claims. The employer pays only for their claims and admin and retains anything they don’t use. Another advantage is that employers gain much more transparency through self-funded plans with access to claims data that help renewal projections.
The employer can also purchase stop-loss insurance to protect against catastrophic claims that exceed a certain threshold. Self-funded insurance plans are typically administered by third-party administrators (TPAs), who handle claims processing, network management, and other administrative tasks.
What does it mean to be fully insured?
A fully insured health plan is a type of health insurance in which the employer pays a premium to an insurance carrier, who assumes the financial risk for providing healthcare benefits to its employees. The premium is based on the number of employees covered, their ages, and the benefit design of the plan.
In a fully insured plan, the insurance carrier is responsible for managing the plan’s benefits, paying medical claims, and negotiating rates with healthcare providers. The employer has little control over the plan design, as the insurance carrier sets the terms of the plan. The insurance company underwriters usually don’t give the group any pricing transparency.
The insurance carrier assumes the financial risk for paying the claims, which provides a level of predictability for the employer. However, this predictability comes at a cost, as the employer has limited flexibility in customizing the plan design to meet the unique needs of its employees.
What does it mean to be self insured?
In a self-insured plan, the employer has greater control over the plan design and benefit structure, as well as the ability to customize the plan to meet the unique needs of its employees. The employer also has access to claims data, which can be used to identify areas of high utilization and implement cost-saving measures.
In self-insured plans, the employer is responsible for paying the covered medical claims incurred by its employees.
Deciding between fully insured vs self insured
Choosing between a fully insured and a self-insured health plan depends on a variety of factors, including the size of the employer, the demographics and health status of its employees, and the employer’s risk tolerance.
Some employers shy away from self-funded insurance because there is a misconception that it can be too risky with too many regulations. This is not the case with self-funding through Benecon’s VERIS consortium. VERIS handles the pricing, stop loss coordination and all money management in addition to providing compliance support. This means employers can feel comfortable in a self-insured arrangement.
| Fully Insured Health Plan | Self-Insured Health Plan |
|---|---|
| Employer pays a fixed premium to an insurance carrier | Employer funds the plan directly |
| Insurance carrier assumes the financial risk for paying claims | Employer assumes the financial risk for paying claims |
| Limited flexibility in plan design and benefit structure | Greater flexibility in plan design and benefit structure |
| Fixed costs | Variable costs based on employee claims |
What is the benefit of choosing self insured?
One of the key benefits of choosing a self-insured health plan is the potential for cost savings. Because the employer assumes the financial risk for paying medical claims, it has the opportunity to realize significant savings if the plan experiences lower-than-expected claims costs. Self-insured plans also provide greater flexibility in plan design and benefit structure, which allows employers to tailor the plan to meet the unique needs of their employees.
Additionally, self-insured plans provide access to claims data, which can be used to identify areas of high utilization and implement cost-saving measures, such as wellness programs and disease management initiatives. Overall, self-insured plans can provide a more cost-effective and tailored approach to healthcare benefits for employers who are willing to assume the associated financial risk.
