Self Insured vs Fully Insured Health Plans

You know that developing a comprehensive benefits package is central to the retention and recruitment of your organization’s talented workforce. Choosing a health insurance plan is one of the most important considerations you’ll weigh when designing compensation plans. Knowing the difference between self insured and fully insured health plans can help arm with you the knowledge you need to make the best choice.

Read on for the essential information businesses need to know about self insured and fully insured health plans, as well as some helpful tips about the pros and cons of each!

What is a Fully Insured Health Plan?

A fully insured health plan is a type of insurance coverage where the employer does not assume any exposure to the financial risk of varying claims made by their employees. A fully insured health plan takes the risk of high claims away from the employer completely, in exchange for a high monthly cost known as a premium. Premiums paid by the employer to the insurance company stay the same from month to month, even if, for example, in February, employee claims total $3,000, and in March, employee claims total $15,000. In other words, the weight of the variable risk belongs to the insurance carrier.

Fully insured employers have negotiated with insurance providers to get a great rate for the employees, and in exchange for the payment of premiums to the insurance company.  

What is a Self Insured Health Plan?

As opposed to a fully insured health plan, an employer who carries a self-insured health plan assumes the risk of their employees’ varying medical claims. Interestingly, a self insured company doesn’t always have to assume all financial risk, however. Self insured companies often can and do contract with insurance companies for “stop-loss” coverage, or coverage beyond a certain, pre-set financial point.

Aside from stop-loss coverage, self-insured businesses generally fund the reimbursement of health insurance costs or medical claims made by their employees from their own assets. The business essentially is its own main insurer. As you can imagine, there are pros and cons to being a fully or self-insured business. 

Is There A Step Between Self Insured and Fully Insured Health Plans?

Yes! In a “level funded” health insurance plan, an employer makes two related, pre-set payments each month, one to a health insurance carrier, and one to a stop loss insurance carrier. The payments to the health insurance carrier accrue in an account reserved for the payment of employee health claims. If the claim amount at the end of the policy contract is lower than expected, the employer can receive either a refund or a credit on the next annual policy contract. If the claim amount is higher, the employer’s stop loss coverage should cover up to a certain amount of the employer’s risk.

What are the Pros and Cons of Fully Insured Health Plans?

Advantages of Fully Insured Health Plans:

• A third-party insurance company assumes the risk of all medical claims made by employees and their dependents.
• Employers know exactly what they will pay in premiums each month from year-to-year, meaning the health insurance costs become a fixed cost.
• Fully insured businesses are able to negotiate for low premiums amongst several different insurers.
• Fully insured employers are responsible for fewer managerial and administrative tasks, including the management of claim denials, than if they were a self-insured business. The insurance company takes on many of these responsibilities.

Disadvantages of Fully Insured Health Plans:

• Premiums can be high and represent a significant fixed cost on the company’s balance sheet each period.
• Premiums can rise with little to no explanation from year to year, regardless of the number of claims the firm’s employees have actually made.
• Fully insured businesses lose out on the tax benefits involved with self insured/ Section 105 Plans.

What are the Pros and Cons of Self-Insured Health Plans?

Advantages of Self Insured Health Plans:

• Though savings may not be immediate, for some employers, becoming self-insured can allow companies to save more money long-term, especially if their workforce is comparably young and healthy.
• Self-insured companies can acquire stop-loss insurance to cap their financial risk.
• There is a possibility of savings, as well as a credit at the end of the plan year if there has been a low employee claim volume

Disadvantages of Self Insured Health Plans:

• The employer assumes the risk of all qualifying medical claims made by employees and their dependents.
• Stop loss insurance puts a cap on total annual losses for employers with self-insured health plans, but it doesn’t mitigate damages from month to month; the variable costs can be hard for small businesses to stomach.

Choosing the Right Health Plan for Your Organization

Getting your employees the fantastic health coverage they deserve while staying within your organization’s budget shouldn’t have to be a balancing act. When choosing the right health plan for your employees, it always helps to talk to an expert. Contact Benely for assistance in finding the perfect coverage for your employees today.