Small businesses looking for ways to better control their group health insurance costs may be comparing the differences between fully insured and self-insured plans. When making the decision between fully insured and self-insured plans, employers must consider which option would be most beneficial to their employees and the business as a whole. Learn the differences between these two types of coverage in terms of plan characteristics, compliance governance, and who assumes the bulk of insurance risk.
What Is A Fully Insured Plan?
When most people think of group health insurance, they think of fully insured health plans. Fully insured health insurance refers to the traditional route of providing workers with health coverage. The business pays a monthly premium to the insurance carrier and the carrier is responsible for the handling of healthcare claims based on the plan’s coverage benefits.
With a fully insured health plan, the insurance company assumes the risk of providing covered employees with health coverage for all insured events. The cost of premiums vary based on a variety of factors, such as employer size, healthcare use, and employee population characteristics. The cost of premiums can also vary over time due to changes in an employer group’s demographics.
Things To Consider Before Choosing A Fully Insured Plan
- Fully insured plans typically have a fixed monthly premium rate that is revisited annually or when there is a change in the number of employees enrolled in the plan.
- Employees and their dependents are responsible for paying any co-pays and deductibles that a plan may require for covered healthcare services.
- Fully insured plans require employer administration instead of the insurance company.
- Insurance carriers collect premiums which are then used to pay healthcare claims based on the coverage benefits outlined in the insurance policy.
Fully insured health plans are typically more expensive than self-insured plans as the risk is shifted to the insurance company. However, when properly executed, a fully insured plan can save businesses money while also providing adequate health coverage to employees. The biggest problem with fully insured plans is that they are inflexible and employers have little control over the plan’s design or cost.
What Is A Self-Insured Plan?
A self-insured plan, also known as a self-funded plan, is a popular alternative to traditional fully insured plans. With this type of plan, the employer instead of the insurance company assumes the financial risk of providing employees with healthcare benefits.
Self-insured employers pay for healthcare claims out-of-pocket as they arise instead of paying a premium to the insurance company. A self-insured employer may open a trust fund which holds employee and corporate contributions used to pay for incurred claims.
Self-insured employers often partner with a third-party administrator (TPA) for assistance processing or adjudicating claims for employee benefits plans. TPAs may offer a wide range of services, such as collecting premiums, providing utilization of healthcare claims, and contracting for PPO networks. Businesses that prefer not to hire a TPA can administer claims in-house.
Why An Employer May Choose To Become Self-insured
- Flexibility to customize their own plan design to meet the unique needs of their workforce, as opposed to a one-size-fits-all fully insured plan.
- Improved cash flow by paying for claims as they arise instead of pre-paying for coverage
- Self-insured employers maintain control over health plan reserves, allowing them to maximize interest income.
- A self-insured employer is not subject to state health insurance regulations and benefit mandates. Instead, they are regulated under the Employee Retirement Income Security Act.
- Self-insured employers do not have to pay state health insurance premium taxes. This results in a savings of 2 to 3 percent of the premium’s dollar value.
- A self-insured employer has the freedom to contract with any healthcare providers or provider networks that they feel are best suited to meet the needs of their workforce.
Of course, self-insured health plans are not ideal for all businesses. When an employer agrees to assume the financial risk of paying healthcare claims for employees, they must have the cash flow to meet this obligation. Businesses with poor cash flow may discover that a self-insured plan is not a viable option.
Speak With The Experts At New City Insurance
While switching to a self-insured health plan from a traditional fully insured plan has the potential to save businesses a significant amount of money, they are not suitable for all organizations. To learn if your company may be a good candidate for a self-insured insurance arrangement or to speak with an experienced employee benefits consulting firm, reach out to the insurance professionals at New City Insurance today.