Benefits Consulting

What’s the Difference? Self-Funded vs. Fully Insured Health Plans

By January 11, 2022 No Comments
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It’s no secret that many companies are looking to lower their healthcare costs. According to Healthcare Finance, employers are expecting a 5.2% increase in healthcare and pharmacy costs in 2022, and if there’s one thing we learned from the past two years, it’s that there aren’t any cookie-cutter solutions to solving the healthcare spend puzzle. For years, employers have been turning to self-funded insurance plans in search of flexibility and cost savings. As the choice between self-funded insurance and fully insured health plans is crossing the minds of many, it’s essential to fully understand how both funding arrangements work. We’re here to help you understand the difference between self-funded and fully insured health plans so you can be confident in the plan that best suits your company and employees.

Financial Impacts: Self-Funded vs. Fully Insured

Self-Funded

  • You pay health claims as they occur and can potentially save significantly on overall premium costs.
  • At year-end, companies with a health plan surplus in their budget have the ability to use those funds for plan enhancements or other employee benefits. 
  • Since self-funded plans are centered on paying claims as they occur, there is a financial risk associated with this type of plan if actual claims exceed projected claims.  

Fully Insured

  • Employers pay a fixed monthly premium per member on the plan, and the insurance carrier covers member claims. 
  • The insurer is on the claim risk with no potential for additional due or refunds at year-end based on actual claims. 
  • Some would argue that there is a lower financial risk with fully insured plans, as you know exactly what you’re paying, and those rates will not fluctuate due to employee health.

Flexibility: Self-Funded vs. Fully Insured

Self-Funded

  • There is much more room for flexibility with self-funded plans., Employers control the plan, decide which conditions are covered and develop the plan based on high-quality care and condition management.  
  • With the vast amount of quality outcome data now available, employers can incent employees to the best providers. This will improve care and reduce health plan costs. 
  • When employers remain committed to a long-term health plan strategy working with the right benefits consultant, the benefits for the employer and employee are tremendous. 

Fully Insured

  • Plans are crafted by the insurance provider and are usually rigid, with little or no room for change.
  • If you’re an employer who is averse to risk or doesn’t have time to handle the more complex administration with a self-funded plan, a fully insured plan may be the best choice for you. 

Employee Care: Self-Funded vs. Fully Insured

Self-Funded

  • When it comes to your employees, the healthier they are, the lower the employer’s health plan cost. 
  • Suppose employees have a chronic condition or are going through treatments for diseases such as cancer. In that case, there is a tremendous opportunity to get employees to the best care in the country to treat and manage the condition effectively. Fully-insured plans claim to have “Centers of Excellence,” but they’re not the same because providers are limited to the carrier networks. 

Fully Insured

  • Employer costs remain level based on enrollment with no fluctuation based on member health. 
  • If the plan performs better than expected, there is no premium share with the employer at year-end. 

Contrary to popular belief, self-funded insurance plans are not just for large companies. This arrangement can benefit companies as small as 25 covered employees. And while fully insured plans are the more traditional route, they can be more expensive in the long run (for specific groups), particularly with the quality initiatives employers can implement with self-funded plans. 

Both self-funded and fully insured plans have their pros and cons. Employers should take the time to understand the inner workings of both to choose the option that best supports their employees and their bottom line. If you’re looking for guidance when making this decision, contact us today.