What Is the Difference Between Self-Insured and Fully-Insured Health Insurance?
If you are an employer setting up a health insurance plan for your employees, then “self-insured” and “fully-insured” are two of the terms you are likely to come across. What do these terms mean? Perhaps more importantly, what do they mean for you as an employer?
Definitions: What “Self-Insured” and “Fully-Insured” Entails
To start, let’s look at the definitions of these two common health insurance terms. In the simplest of terms, there are two primary structures that employers or other groups will use for their group health insurance plans. Self-insured and fully-insured are the terms used to designate these two different group insurance structures.
In most cases, employers will opt for a fully-insured health insurance plan for their employees. This structure is the more popular and more traditional course of action for group health insurance plans.
To set up a fully-insured health plan, an employer would negotiate and pay a premium to an insurance carrier. This premium payment would be fixed on a 12-month basis and would be determined by the number of employees enrolled in the plan. The only way that the insurance carrier could change the premium during the 12-month fixed span would be if the employer decided to add new employees to the plan.
In addition to the number of staff on the scheme and the agreed upon premium rate, the employer would also negotiate coverage benefits and other policy details with the insurance carrier. The carrier would then cover any employee medical claims in accordance with these policy details. The employer would not have to worry about the policy at all beyond paying the premiums. The employees, meanwhile—as well as other covered individuals, such as spouses or dependents—would be responsible for covering deductible or co-pay amounts as outlined in the policy negotiated by the employer.
A self-insured health insurance plan (also often referred to as a self-funded health insurance plan) is a less common type of group health insurance plan. As the name suggests, this type of plan sees employers operating their own health insurance plans instead of relying on insurance carriers.
In other words, with a self-funded plan, there is no step of negotiating a group plan with an insurance company, nor is there is a premium for the employer to pay. Instead, the company outlines the terms that it is willing to offer employees for health coverage and then covers the expense of any claims that come through from enrolled members. Deductible and co-pay amounts, as set by the company itself, still apply in most cases.
The Pros and Cons of the Two Group Health Insurance Structures
As you might expect, there are clear pros and cons to both models for group health insurance plans. If you are looking to put together a plan for your company’s employees, considering these advantages and disadvantages will help you choose the plan that is best for your bottom line.
The core advantage of a fully-insured plan is that employers don’t have to take on any real risk. Your only responsibility with this type of plan is arranging the specifics with the insurance carrier and paying the premiums. All the actual “risk”—paying out claims from members of the insurance plan—is taken on by the carrier.
Self-insured health plans are inherently riskier because the employer is the entity responsible for paying claims. As a result, these plans tend to be more popular among larger enterprises that have more capital at their disposal. By self-funding their health insurance plans, these companies don’t have to pay premiums to insurance companies. Thus, they can feasibly save money in the long term by only paying for actual health care claims from their employees.
The risk with self-funded plans is that health insurance claims are an unpredictable variable. There is no way for a company to know how many claims they are going to get from their employees in any given month or year, nor is there any way to predict the overall severity or expense of those claims. Therefore, a company that opts for a self-insured health plan could end up paying more than it intended for employee healthcare benefits.
Learn More from Reliance Insurance Group
At Reliance Insurance Group, we can help companies like yours design both self-insured and fully insured health plans, depending on your preference. If you still aren’t sure which option is right for you, you can consult with one of our associates to learn more. Call us at 732-602-0010 if you have any questions.