Any good employer knows the importance of having a competitive benefits package to offer their employees. As health insurance costs continue to rise, many businesses are rethinking their health insurance plans. There are two primary types of plans to consider— fully-insured plans and self-funded plans, and understanding how both of these health plans work can help your company immensely.
So, what’s the difference between a fully-insured and self-insured health plan? Let’s take a look!
Fully-Insured Health Plan
A fully-insured health plan is the more traditional way to structure an employer-sponsored health plan. As the employer you often feel less of the effects of rising medical costs and have the option to negotiate with health insurance providers to get the best rates possible for their employees. In addition, claims under fully-insured plans are managed by the medical care provider and insurance provider so employers can focus solely on their business 1.
With a fully-insured plan, the risk falls on the insurance company. The business pays the insurance carrier a set premium price each year based on the number of employees who are enrolled in the plan each month. If any claims exceed the projections created at the start of the year, the insurance company assumes all legal and financial risk. As the price is fixed until the employer makes a new deal, there are no financial surprises which can be very beneficial for an employer!
For over 15 years, Steve Grady Insurance Services has helped businesses navigate the complexities of health insurance. We can help get your business set up with a fully-insured health plan, utilize technology to improve the process and be a resource for managing all clients so you don’t have to— win, win!
So, what can you expect with a fully-insured health plan 1?
- The company pays a premium to the insurance carrier.
- The premium rates are fixed for a year, based on the number of employees enrolled in the plan each month.
- The monthly premium only changes during the year if the number of enrolled employees in the plan changes.
- The insurance carrier collects the premiums and pays the health care claims based on the coverage benefits outlined in the policy purchased.
- The covered persons are responsible to pay any deductible amounts or co-payments required for covered services under the policy.
Self-Insured Health Plan
With a self-insured plan, the employer operates as the insurance provider and takes on the financial risk for providing health care benefits to its employees. Self-insured employers save money by funding claims out-of-pocket as they are submitted instead of paying a predetermined premium to an insurance carrier. While there are many benefits to using self-insured plans, there are also downfalls. Unexpected claims can result in climbing costs. However, if the business only has a limited number of claims, this aspect can be advantageous. By eliminating some of the costs associated with fully-insured plans, employers are able to offer employees lower premiums.
So, what can you expect with a self-insured health plan1?
- There are two main costs to consider: fixed costs and variable costs.
- The fixed costs include administrative fees, any stop-loss premiums, and any other set fees charged per employee.
- The variable costs include payment of health care claims.
- To limit risk, some employers use stop-loss or excess-loss insurance which reimburses the employer for claims that exceed a predetermined level.
Which plan should you choose?
If you want less risk and reduced cost variance, but are ok with a higher monthly premium, a fully insured plan may be your best option. If you’re OK with taking on the risk and have a team to help manage all aspects of insurance— including claims and filing, then a self-insured plan may be a good fit.
Have more questions on which option is right for you? Give us a call or visit our website to learn more.