Self-Funded vs. Fully Insured - A Large Employers Guide To Health Insurance Plans
Health insurance plans can be a bit complex for large employers. Take a look at what makes an insurance plan self-funded vs. fully insured and how they differ.
Funding Options for Large Employers: Fully Insured vs. Self-Funded
When it comes to choosing a funding option for large employer health insurance plans, there is no one-size-fits-all approach. This is why it’s important for HR Managers and benefits leaders to be well-informed about the topic, and strategic in their decision-making process. When we say “funding”, we are talking about the arrangement in which an employer pays for employee benefits. The two most common funding options include fully insured and self-funded plans.
What are the differences between Fully Insured and Self-Funded plans?
Fully Insured:
A “fully insured” health plan is what most people picture when they think of insurance. An employer pays a premium to an insurance carrier and in return the insurance company assumes the risk of providing health coverage for insured events. These plans are more predictable as far as costs go, as there is a set premium amount that employers can expect to pay, reducing risk in uncertain times.
Self-Funded:
A “self-funded” (or self-insured) health plan is when the employer acts as its own insurer, taking on most or all of the costs of benefit claims. Employers will usually contract an insurer capable of administering self-funded plans or a TPA or “third-party administrator” to manage certain functions such as processing medical claims and facilitating enrollment. Employers will also pair these plans with stop-loss insurance to cover larger than expected health care costs or catastrophic claims. These plans offer several potential benefits, including cost savings, and the potential for a more customizable plan structure.
| Fully Insured | Self-Funded | |
| Administration |
The insurer is usually responsible for handling administrative tasks. |
Employers have the option to either manage the plan themselves or hire a third-party administrator (TPA) to carry out certain administrative functions. |
| Responsibility to Pay |
The insurer pays the medical claims (according to the policy terms) while the insured pays a fixed premium. |
The employer is responsible for paying for incurred medical claims using a dedicated fund. |
| Plan Design |
Standard plan designs with typically less flexibility for customization. |
Customizable to meet the specific needs of the workforce |
| Savings Opportunities |
Typically no savings opportunities. |
On years with low claims, costs are higher than claims incurred and the surplus doesn’t return to the employer. On years with high claims, employers risk spending more to cover the claims, but on years with low claims, they will pocket the savings. |
| Financial Risk |
Minimal. Employer pays their monthly insurance premium regardless of the health of employees. |
Moderate to high. Employer pays an administration fee to TPA along with the health claims their employees incur. |
|
Governance |
Subject to federal, state, and local mandated coverage requirements |
Subject to ERISA and federal regulations however are generally exempt from most or all state and local mandates and regulations |
How Select Health helps large employers
Select Health offers several options across both fully insured and self-funded plans, which are designed to meet the needs of your employee base while providing opportunities for cost savings. Our products are ideal for companies with a significant presence within our Intermountain Health footprint: Utah, Idaho, and Nevada. Outside our footprint, our national network provides expansive coverage nationwide.
In addition to offering fully insured and self-funded plans, Select Health offers other “hybrid” funding options such as contingent funding that is designed to suit an employer’s risk tolerance.
To learn more about our funding options, check out our funding and network options page and contact your insurance consultant or our New Business Sales team today to see how Select Health can help you find the right funding option for your company.
