As an employer, you want to provide the best health plan coverage possible to your employees. With so many options out there, it can be difficult to find the best fit on your own. Primarily, you will need to decide between fully insured vs self-insured health plan options. In this post, we will explore some of the top frequently asked questions for these two options and examine the biggest advantages and disadvantages of each.
Fully Insured Health Plan: Pros and Cons
With fully insured health plans, the carrier charges a fixed amount per covered employee. Organizations with more than one hundred employees enrolled are claims-rated. This means that the carrier determines the fixed amount by reviewing the claims incurred during the plan yea,r and forecasting these with assumed inflation and trend increases. Organizations with fewer than one hundred employees enrolled are community-rated. So, this means the carrier looks at other small employers in the demographic, and can use limited factors such as age, but not the individual medical history of the employee.
Pros of a Fully Insured Plan:
- Level monthly expense flow
- Fixed budget – other than the number of covered participants adjustments
- Lack of volatility and risk in claims expenses
- Employers with high claims may benefit from a fully insured plan if renewal calculations meld with a community pool
- When they terminate the plan, the carrier is responsible for incurred but not reported (IBNR) claims
- Easiest transition for carrier changes or mergers/acquisitions
Cons of a Fully Insured Plan:
- Subject to state regulations and mandates
- Subject to larger expenses
- Premium taxes of 2-3%
- Assessments
- Reserves
- Profit
- Less flexibility in plan design
- Limited transparency of plan costs
- Smaller fully-insured groups receive limited reporting
Self Insured Health Plans: Pros and Cons
A self insured plan allows you to purchase administrative services and optional stop-loss insurance. As the employer and policyholder, you must pay medical claims as they are expensed. The employer would pay any additional fixed costs monthly.
Pros of a Self Insured Plan:
- Greater flexibility for plan design and customization
- It is a fair system; employer pays only for what claims are actually used
- Cash flow advantage
- The employer only pays a claim once it is paid to the provider
- State regulations generally do not apply
- Analyze detailed claims data and usage trends for improved financial control
- Potentially lower fixed costs
Cons of a Self Insured Plan:
- Higher compliance requirements for HIPAA and other applicable federal laws
- Employer must be comfortable with a 3 – 5 year, long-term perspective to analyze plan performance
- Monthly cash flow can vary based on claims
- Some stop-loss contracts will reimburse the plan after a claim has been funded by the employer
- Employer must pay the funds until reimbursed
- Employer must keep reserves for incurred but not reported (IBNR) claims incurred if terminating the plan
Decide Between a Fully Insured vs Self Insured Plan
When deciding between a fully insured vs self insured plan, it’s important to work with a trusted benefits consultant who has your best interests at heart. Not every benefit advisor has the level of experience we do, and some are not transparent about their fees and policies. The team at Clark & Lavey Benefits Solutions has years of experience and a proven record of success. If you’d like more information on choices when it comes to funding your employee benefits, contact us today!