Most businesses consider healthcare a non-negotiable part of their overall benefits package. However, as medical costs continue to climb, many organizations are seeking ways to reduce their healthcare expenses while offering employees the benefits they seek. Switching from a fully insured plan to a self-insured option is an effective solution for some businesses.
Outlined below are the differences between fully insured and self-insured health plans.
What Is a Fully Insured Healthcare Plan?
Fully insured health plans are the traditional method of providing employees with healthcare. The employer pays an insurance company a fixed premium for everyone enrolled in the plan, and the insurance company will pay for their medical claims. The premium is fixed and depends on the number of employees enrolled. Employees will be responsible for any copays or deductibles outlined in the policy.
Many businesses choose this method because its cost is predictable. The insurer takes on the administrative duties. As the most common approach to healthcare benefits, most businesses and employees understand how it functions.
However, a fully insured plan is often more expensive with potential rate increases and higher taxes. In addition, for employers whose workforce is generally healthy and does not require much healthcare, the amount they spend on their premiums could be significantly higher than the actual expenses. They will not receive any of the money back.
What Is a Self-Insured Healthcare Plan?
A self-insured plan gives companies more control over their benefits by enabling them to operate their own health plan and take on all financial risks. These plans are significantly more flexible than their fully insured counterparts because they eliminate the need to commit to one of the insurer’s fixed plans. This makes it a desirable option for businesses with unique worker populations. Their premiums can also be significantly cheaper.
However, organizations must take on the administrative burden of managing these plans. They must calculate the variable and fixed costs involved. However, they can hire third-party administrators (TPAs) or use software to make these tasks easier. For example, a TPA can be enlisted to process medical claims as they are received from doctors, pharmacies, and hospitals.
There is greater financial risk with self-insured plans. Still, many organizations take out excess loss or stop-loss insurance that can help in cases where a catastrophic health claim exceeds a set amount.
Aggregate coverage covering claims above the group’s expected level is also available. This eliminates much of the risk involved in cases where an employee develops a serious illness that requires expensive treatment.
The Differences Between Fully Insured and Self-Insured Healthcare Benefits
Outlined below is a breakdown of how each approach addresses major insurance concerns.
Risk
With a fully insured plan, the insurance company takes on all the risk. However, employers assume the risk in self-funded options.
Payments
Employers do not pay premiums with self-funded plans. Instead, they pay the employees’ healthcare claims, which can vary, and any fixed costs for administration and stop-loss premiums.
With a fully insured plan, employers pay a premium per employee that depends on factors such as healthcare use, the characteristics of their employee population, and their size. This may change over time as their employee demographics evolve.
Compliance
While fully insured plans must adhere to state mandates, self-funded options are governed by federal ERISA law.
Plan Design
Employers who choose the fully insured route must select from a series of pre-existing plans designed by their insurance carrier. With self-funded care, employers have greater control over how their plan is designed.
Choosing the Right Solution
One of the biggest advantages of switching to a self-funded plan is the potential cost savings, especially for employers whose workforce is relatively healthy and does not use many healthcare services. It also eliminates the need to pay premium tax.
Although many small businesses might think this is not a realistic option, stop-loss insurance and third-party administrators can eliminate much of the risk involved and make it more financially viable.
However, there are some cases where choosing a fully insured plan is preferable. For example, employers who lack a steady cash flow might not be comfortable with the possibility of their costs fluctuating from month to month with self-funding plans. Those who need more resources or time needed to develop and manage more complex plans may appreciate the simplicity of fully insured plans.
There are many factors to consider when deciding between these two popular models, and there is no ideal solution. In order to reduce costs while continuing to offer healthcare benefits, businesses can work with employee benefits consultants that assess healthcare needs, budget, and workforce and help them find the best way forward.
Contact the Employee Benefits Consultants at Business Benefits Group (BBG)
Ensure your business is equipped with the right health insurance to attract and retain top employees without compromising your budget by working with the professionals at Business Benefits Group (BBG). Call us today at (844) 201-3609 to learn more about our services, or fill out our online contact form to request a consultation.