Fully-Insured vs. Self-Insured – What You Need to Know

fully insured vs self insured

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. Two funding health plan options are fully-insured plans and self-insured plans. In this post, we will explore some of the top frequently asked questions for these two plans and examine the biggest advantages and disadvantages of each.

Fully-Insured 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, meaning that the fixed amount is determined by reviewing the claims incurred during the plan year and forecasting these with assumed inflation and trend increases.  An organization with fewer than one hundred employees enrolled are community rated, which 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

  • Level monthly expense flow
  • Fixed budget – other than the number of covered participants adjustments
  • Lack of volatility and risk in claims expenses
  • If renewal calculations meld with a community pool an employer with high claims may benefit
  • Carrier is responsible for incurred but not reported (IBNR) claims when the plan is terminated
  • Easiest transition for carrier changes or mergers/acquisitions

CONS

  • 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
  • Limited reporting is available for smaller fully-insured groups

Self-Insured Pros and Cons

A self-insured plan allows you to purchase administrative services and optional stop-loss insurance. As the employer and policyholder, you are then responsible to pay medical claims as they are expensed. Any additional fixed costs are paid monthly.

PROS

  • Greater flexibility for plan design and customization
  • It is a fair system – employer pays only for what claims are actually used
  • Cash flow advantage
    • Employer does not pay a claim until it is paid to the provider
  • State regulations generally do not apply
  • Detailed claims data and usage trends are analyzed for improved financial control
  • Potential Lower fixed costs

CONS

  • 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 could vary 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

Whether you’re in a fully-funded or self-insured plan, it’s important to work with a benefits consultant you trust, and 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!