Fully Insured Plans vs. Self-Insured (Self-Funded) Health Plans: A Guide for Employers

When it comes to healthcare offerings, businesses are always looking to control costs while still providing a strong benefits package to employees. The two most popular funding strategies for health insurance plans are fully insured plans and self-insured plans. It’s important to understand how both of these options work so that, as an employer, you can make a better decision about which solution works best for your company. Let’s do a comparison of fully insured plans vs. self-funded health plans.

A fully insured plan is considered the more traditional way to structure and operate an employer-sponsored health plan. A company pays a premium to the insurance carrier, and premium rates are fixed for the year, based on the total number of employees enrolled monthly in the plan. The premium only changes throughout the year if the number of enrolled employees in the plan changes. The company’s insurance carrier collects the premium from the company and pays healthcare claims as they occur, based on the benefits outlined in the policy purchased by the company. The covered persons under the plan (such as the employee and their dependents) pay any deductibles, coinsurance or co-payments outlined in their policy.

According to the Self-Insurance Institute of America, Inc., “a self-insured group health plan (or a self-funded plan as it is also called) is one in which the employer assumes the financial risk for providing health care benefits to its employees.” In this arrangement, a company is not paying premiums to the insurance carrier, instead, they are paying the actual claims as they arise. Self-funding also gives companies more control over benefits offered and plan design. However, choosing to go self-funded comes at a higher risk, since the company is now acting as their own insurance company.

Before deciding to go self-funded, a company should consider the two main costs – fixed costs and variable costs. Fixed costs include administrative fees, any stop-loss premiums and any other fees charged per employee. Variable costs include payment of healthcare claims, which can vary month to month. It is important to note that employers can be fully self-insured, or partially self-insured, continuing third-party coverage for certain claims and then self-funding other claims.

There are steps that an employer can take to minimize risk when choose to move to a self-funded health plan. These include purchasing stop-loss insurance which can reimburse an employer for any claims that hit a certain limit. A stop-loss insurance program, also known as an excess coverage plan, can help curb any high, unexpected expenses.

We know that choosing the right health plan for your business is no easy task. The Employee Benefits Management Group (EBMG) at Rose & Kiernan, Inc. can help. Contact us here or by calling (800) 242-4433.

Advice given in this article is for information purposes only and are not intended to replace the advice of an insurance professional.

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