Fully Insured vs. Self-Insured (Self-Funded) Health Plans

There are two common ways to structure a group health insurance plan: fully insured and self-insured (or self funded). So, what is the difference between a fully-insured and self-funded plan?

A fully-insured health plan is the more traditional way to structure employer plans.  Most people are familiar with how they work however, here is a an overview:

• The employer pays a premium to the carrier based on the number of employees enrolled in the plan per month.  The premium changes only when the number of enrolled employees changes.
• Rates are fixed for one year i.e., from initial enrollment date to the anniversary date.
• The insurance carrier pays the health care claims based on the benefits outlined in the policy.
• The covered persons (employees and dependents) are responsible to pay any deductible amounts or co-payments required for covered services under the policy.

With a self-insured (self-funded) health plan, the employer (usually larger companies) operate their own health plan as opposed to purchasing a fully-insured plan from an insurance carrier. Here is how they work:

• Employers choose to self-insure because it allows them to save the profit margin that an insurance carrier adds to its premium for a fully insured plan.
• There are two main costs to consider: fixed costs and variable costs.  The fixed costs included payment of healthcare claims.  These costs can vary from month to month based on health care services obtained by employees and dependents.
• To limit risk, some employers use stop-loss insurance which reimburses the employer for claims that exceed a pre-determined amount. This coverage can be purchased to cover catastrophic claims on one covered person (specific coverage) or to cover claims that significantly exceed the expected level for the group of covered persons (aggregate coverage).

Top Ten Reasons To Consider a Partially Self Funded/Level Funded Healthcare Plan:

1.  A self funded plan contract puts the control back into the employer’s hands allowing them to make better plan and employee decisions.
2. No risk or penalty if the group moves back to a fully insured plan.
3. Exempt from state mandated benefits i.e., Affordable Care Act mandates.
4. Full claims transparency and reporting.
5. Exempt from state premium tax.
6. Potential claims surplus (refund) at the end of contract.
7. Not subject to benefit design mandates allowing for more affordable benefit levels.
8. Group can negotiate rates on new business and renewal business unlike fully insured groups under 100.
9. Medically underwritten versus community rated for groups with less than 100 enrolled.
10. A broad selection of carriers: Aetna, Anthem Blue Cross and Blue Shield, Cigna, Humana, National General and WellNet.