You understand how crucial it is to develop a comprehensive benefits package, and that great health insurance is central to retention and recruitment of your organization’s talented workforce. When choosing which type of health plan is right for your business, it’s important to know the difference between the two main types of plans: fully insured plans and self-insured plans. Knowing and appreciating the distinguishment between the two, as well as the pros and cons of being a fully-insured business, helps human resource professionals make informed decisions and saves your company money.
What is a Fully-Insured Business?
What makes a business fully-insured, in terms of the health insurance they offer to employees, is that the employer does not assume all of the exposure to the financial risk of claims payments made by their employees. When an employee goes to the doctor and submits a claim, the insurance company pays the doctor, not the employer themselves. The employer has already done their part by paying a monthly premium to the insurance company.
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, employers do not have to pay the medical claims of their employees. Fully-insured employers can therefore withstand rising medical costs better than self-insured employers.
What is a Self-Insured Business?
As previously explained, in a fully-insured business, the financial exposure to medical claims is borne by an insurance company. In a self-insured business, on the other hand, the employer themselves assumes the risk. A self-insured company does not have to assume 100% of the 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.
What are the Advantages of Being a Fully-Insured Business?
- 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.
What are the Disadvantages of Being a Fully-Insured Business?
- Premiums can be high, and represent a significant fixed cost on the company’s balance sheet each period.
- Fully-insured businesses lose out on the tax benefits involved with self-insured, or Section 105 Plans.
- Though savings are not immediate, for some employers, becoming self-insured can allow companies to save more money long-term.
- Self-insured companies can acquire stop-loss insurance to cap their financial risk.
Choosing the Right Health Plan for Your Organization
After learning about fully insured health plans, you’ll want to weigh the pros and cons of this type of health plan for your organization. It always helps to talk to an expert, and Benely is here to help. Contact Benely for assistance in finding the perfect coverage for your employees.