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The Differences Between Fully Insured Plans & Self Insured Plans

October 2, 2021, by New City Insurance

people in office talking about self funded planSmall 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.

fully insured checked with green sketch for Self Insured PlansWith 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

self funded insurance heading

  • 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.

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Carol Zhang
Carol Zhang
04:29 06 Mar 22
As a rapidly expanding national media organization, the employee benefits strategy and administration that New City has provided us during our growth has been invaluable. They have been proactive about informing us of the different benefit strategies available to us as we grow as well as managing the additional compliance laws and reporting requirements at each stage of our growth.
Claudia Villalobos
Claudia Villalobos
20:14 03 Mar 22
New City Insurance made navigating through all the health insurances super EASY. Their documents are highly informative, professional, and easy to work with. Thank you for making the process of choosing a health plan so simple. You guys are THE BEST!
Philippe Salas
Philippe Salas
17:02 22 Feb 22
I never expected to have a good time talking to an insurance salesman, but let me tell you Brendan was quite the treat. He was very helpful explaining the options and has a wonderful sense of humor. I hope to speak with him every time I call.
Jennifer Polito
Jennifer Polito
17:15 09 Feb 22
Super easy enrollment process. Fast and friendly customer service. If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance.
Rocky Salas
Rocky Salas
23:46 07 Jan 22
So friendly, I hope to speak to him again in all my future insurance needs.
Rocky Salas
Rocky Salas
23:38 07 Jan 22
So friendly and soft spoken. I hope to speak to him again in all my future insurance needs.
Jose Brena
Jose Brena
13:20 06 Jan 22
Eric Calciano has been extremely helpful in finding and selecting the right insurance coverage for our company. With many options out there Eric assisted us on getting a low cost provider saving more than 20% than from our competitors and providing excellent coverage for our employees.
Anastasia Beaverhousen
Anastasia Beaverhousen
17:05 28 Dec 21
Signing up for insurance was quick and easy. Felicity Sundsboe
SFCC
SFCC
22:08 29 Nov 21
Jeff Stoltey and his team provide excellent customer service. Jeff has always provided my company SFCC with straightforward options. I went to a larger insurance company only to RUN BACK to Jeff at New City Insurance. I recommend them to anyone needing insurance without hesitation.
Kevin Luby
Kevin Luby
19:13 22 Oct 21
Quick, easy & informative. We were able to secure quality insurance for our small business on a tight deadline. Thanks for the help New City.
Theresa Ruybol
Theresa Ruybol
19:30 01 Jul 21
Eric was so great with us. He was very patient and kind as we are a newer smaller organization who is growing rapidly. With that said, we had made our inquiry, he had great rapid response and mostly had to wait on me. Any request that we made and/or questions we had, he was great answering and helping us understand. Then when we were ready for all documents and to move forward, Brendan helped with getting that together and the two of them worked their magic on New City's end to notify me of what was needed, assist me in that process and confirming that all was complete and approved for the coverage. I just want to say thank you all again so much, as insurance has always been confusing to me, and you all made that process go a lot smoother.Thank you
Andrea Ordendorff
Andrea Ordendorff
21:06 07 May 21
I've been working with both Clayton and Brendan for well over a year. As the purchase of our dental practice was delayed well over 14 months they both patiently supported me and continued to make themselves available. When we were officially ready to sign up they made the whole process seamless and super easy. This team is highly knowledgeable, professional, supportive, and efficient! I can't thank them enough for everything they've done.
T W
T W
22:32 30 Aug 20
I love New City Insurance. I never had a good experience dealing with insurance brokers until I started working with Brendan. He’s awesome! He is patient with me and takes the time to answer all my questions. I’m very grateful for all his help and hard work!
Mary Jane Deyette
Mary Jane Deyette
00:57 11 May 20
Jeff Stoltey is so awesome...even thru my company had only two employees, he took the time each year to research and find the best plan for us. The only reason I am leaving New City Insurance is because we no longer have any employees. Thank you Jeff
Alma Ortiz
Alma Ortiz
22:25 23 Feb 20
Brendan was awesome! I couldn't figure out how to pick my plan and he returned my call on a weekend to help me. Outstansing service!
jessica kavanagh
jessica kavanagh
19:53 13 Feb 20
Brendan was so helpful I definitely recommend him if you’re in need of good help and getting it done promptly. Thankyou so much again.
Tricia DeYoung
Tricia DeYoung
19:49 13 Feb 20
I was very thankful I inquired about this info. with Brendan. He was very helpful so I understand the benefits available much better now. Thank you Brendan.
B Bayer
B Bayer
17:43 24 Sep 19
NCI handled almost everything from start to finish. Clayton and Brendan made the plans easy to understand and walked me through the application process. They got me my ID numbers before my cards arrived so that I could keep an appointment I had already scheduled. My last broker wouldn't have done that. 5 stars!
Jessica Lehr
Jessica Lehr
03:36 07 Jun 19
Our staff was interested in a health plan, but we didn't know how beneficial a solid employee benefits package would be for our business to expand. We'd lose prospective employees because they had more options for their medical insurance which was sometimes more valuable than more pay. The New City team was amazing and gave us as many affordable options as possible so that everyone had their needs met.
Mike McClay
Mike McClay
19:36 03 May 19
My employer uses New City as their insurance broker, and I'm always amazed when I call in for assistance by how knowledgeable and attentive their staff is with my requests. Their online benefits platform makes selecting insurance plans pretty darn easy. I would highly recommend their services.
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