Providing employees with group health insurance can be an effective hiring and retention tool. When setting up health insurance for a business, employers must decide what type of insurance is best suited for their organization. Most health plans are structured as self-funded insurance or fully-funded insurance. Read this article for more info on the difference between self funded insurance vs fully funded.
What Is A Fully-Insured Health Plan?
A fully-funded or insured health plan is the traditional way to structure employer-sponsored health plans. In this type of setup, the business pays a premium to the insurance carrier. Premiums are fixed for a year and based on the number of employees enrolled in the plan each month. The insurance carrier then uses the premiums to pay for any healthcare claims based on the coverage guidelines in the policy purchased. Employees are responsible for paying any copayments or deductibles for services covered under the policy.
What Is A Self-Funded Insurance Plan?
A self-funded or insured health plan, involves an employer managing their own health plan instead of buying a policy from an insurance carrier. There are many reasons why an employer may choose to self-insure, including significant savings on premiums. However, self-insuring also comes with certain risks, especially if the business encounters more claims than expected.
Under a self-funded insurance plan, the employer calculates the fixed and variable costs for the plan. Fixed costs typically include administrative fees and stop-loss premiums, while the variable costs include health care claim payments. Employers often purchase stop-loss insurance to protect their business against catastrophic claims. Stop-loss or excess-loss plans reimburse employers for claims that exceed a predetermined level.
Benefits Of Self-Funded Insurance Plans
Making the switch from a fully-funded insurance plan to a self-funded plan can result in a wide range of benefits for businesses and their employees. Some of the key benefits of self-funded insurance plans include the following:
They Are Flexible
Self-funded insurance plans provide employers with greater flexibility over their health insurance. Employers can customize their self-funded health plan to align with their business goals and growing employee population. Employers also have more control over choosing, monitoring and coordinating with plan vendors.
With self-funded insurance, businesses can design a health plan that meets the specific needs of their employees. In turn, this can improve employee retention as workers are more likely to stay with a company that provides the health insurance coverage they need. Customized health benefit plans can also be an effective recruiting tool for finding new talent.
Benefit From Having A Network Of Providers
A business with a self-funded health insurance plan will generally require a provider network’s services to negotiate discounts with hospitals, doctors, and other health care services. Companies will often partner with a third-party administrator (TPA) to handle many of the administrative aspects of self-funding. TPAs have a great deal of expertise in managing self-funded health insurance plans and can handle many important tasks.
One of the most important TPA duties involves provider network management. TPAs may choose provider networks for employers and ensure that they receive the best discounts possible. Employees then have the benefit of choosing from a network of providers.
Potential To Receive Money Back At The End of the Year
Under a traditional fully-funded health insurance plan, an employer pays a fixed amount to the insurance carrier each month, regardless of how many claims are made. At the end of the year, the insurance carrier retains any unused funds even if the employer’s amount exceeds the claims amount. With a self-funded insurance plan, the employer has more control over cash flow. An employer can choose to fund expenses as they become due or can deposit the expected or maximum cost into an account every month. If the amount of money put into the account exceeds the claims’ value, the employer may receive money back at the end of the year.
Not Subject To Certain Government Regulations
Self-funded employers are not subject to certain state health insurance regulations. Self-insured health plans are instead regulated by federal law, particularly ERISA. The Employee Retirement Income Security Act (ERISA) is a federal U.S. law that establishes minimum standards for voluntary health and retirement plans in the private industry.
Although self-funded employers are exempt from following state insurance laws and regulations, they must comply with all applicable federal laws, such as HIPAA, ADA, COBRA, DEFRA, TEFRA and ERTA.
Talk With New City Insurance For More Info On Self Funded Insurance Vs Fully Funded
Self-funded health insurance plans provide businesses with the flexibility to meet ever-evolving health care challenges and enable employers to manage health care costs better. The insurance experts at New City Insurance work with businesses of all sizes to set up self-funded insurance plans that align with business goals. To learn more about self-funded insurance or to speak with an insurance professional, contact New City Insurance today.