Self Insured vs Fully Insured
Health insurance costs are increasing year by year, and employers are now rethinking their business’ health insurance options. Let’s talk about the two main health insurance plans to choose from: fully insured plans and self insured plans. Understanding these options enable you to make an informed decision and choose the more cost-effective employer-sponsored medical plan for your business.
Let’s start differentiating Fully Insured Plans from. Self-Insured Plans:
Fully Insured Plans
When you choose a fully insured medical plan, you won’t seriously feel the effects of the increasing medical costs. You also have the chance to negotiate with health insurance companies to get the best rates.
What’s convenient about fully insured plans is that the claims are managed by medical care providers and health insurance providers. This helps you save your precious time, which is better spent growing your business and taking care of the big picture.
If you choose a fully insured plan, the insurance company shoulders the risks, making it ideal especially for large businesses. As to pricing, employers are to pay the insurance carrier a set premium price yearly based on the number of employees enrolled in the plan per month. If there are claims that exceed the projections set at the beginning of the year, the insurance company will assume all the financial and legal risks. The price the employer pays is fixed until the contract ends. You won’t have any hefty financial surprises with fully insured plans.
Let’s break down the pros and cons of a fully insured plan:
Pros of Fully Insured Plans:
Businesses can expect fewer cost volatility month over month
Employers have a chance to negotiate and lower the rates
All health insurance claims are handled by the insurance provider
Health insurance costs are fixed throughout the contract period
The health insurance company will assume all the risk
Cons of Fully Insured Plans:
Insurance premiums can be expensive
Employers should negotiate with insurers every year to try to lower costs
It can be difficult for employers to discuss coverage benefits
Employers’ tax burdens are usually higher
If the employees are healthy and don’t use much their healthcare, a significant sum is spent and you don’t get any of your money back.
While the fully insured plan helps you unload the risks, a self insured plan entails assuming most of the risks. Businesses that choose a self insured plan should pay the medical claims as well as the associated fees out of their own general assets. You then are your own insurer.
If you are to deal with only a limited amount of claims, the saving potential can be huge. However, if there are multiple unexpected claims, that’s when you feel the downsides.
Bigger companies usually find self insured plans riskier, but smaller companies may view it as a more cost-efficient choice. Smaller companies can afford the self-insured plan because they can buy stop-loss insurance which places a limit to the number of claim expenses the business takes on per year and per employee. This serves as a layer of protection to mitigate risks should multiple employees simultaneously file health insurance claims. With stop-loss insurance, an employer’s health plan can be reimbursed should any claim fall above the amount limit set. Buying a stop-loss coverage is recommended to avoid having to deal with large claims. Cancer treatments can easily cost more than $200,000 per year. Stop-loss insurance can help avoid suck huge, overwhelming costs.
Employers can also choose to hire a TPA or Third Party Administrator to administer the health plan. The TPA will be the one to process claims and handle the paperwork. They pay the claims by accessing the employer’s bank account intended for this purpose.
Let’s now tackle the pros and cons of self-insured plans.
Pros of Self Insured Plans:
Self insured plans have huge saving potential in the long-term
There are options like stop-loss insurance to minimize risks
Employers can have more control over the benefits
The healthier the employees, the lower the healthcare plan costs
By self-funding, you can avoid premium tax and spending for insurance company’s profit margin.
Cons of Self Insured Plans:
Self insured plans are riskier, especially if you have multiple employees
Savings may not be felt immediately and may take some years to develop
Employers should handle the whole process (though they are free to hire third-party services)
Companies should deal with all insurance aspects, including denied claims
Which Plan Should You Choose?
Fully insured health plans and self-funded plans both have pros and cons. It’s all about assessing what your company actually needs and choosing the option that is more cost-effective and less risky. But generally, self insured plans make more sense for around 70% of companies with adequate cash flow and have around 25 employees. Small businesses can make the most of self insured plans , especially if they maximize options like stop-loss coverage. However, if you want nothing to do with taking care of insurance claims and issues, fully insured plans might be the better choice.
Recent data show that there are now more private-sector companies shifting to self-funding. 2016 data shows that nearly 41% of private-sector institutions chose self-funded plans—a huge spike from just 28% in 1996.
Self-funded plans also enable employers to better understand their healthcare spend, and there are also tools and opportunities for employers to make self-funding more manageable. But if your time and mental space is more important to you and you can’t afford to be more hands-on with the process, choosing fully funded plans can help you get rid of all the hassle. Besides, self-funding has a lot of compliance requirements that you no longer have to deal with if you choose fully insured plan. Also, if your business’ cashflow is not stable, going self-insured might not be a good idea. Just keep all these considerations in mind when deciding which is the better option for your organization. It’s all about knowing your needs and preferences and meeting them with the right type of health insurance plan.