When employers are considering offering a new health plan, they need to consider how the plan will be funded. Some employers choose to fund the whole plan, while others lean towards allowing the employees to fund the plan themselves. Other employers may choose to administer the plans themselves rather than using an insurance company.
There are benefits and drawbacks to each option, and employers need to consider all of their options before making a decision. An essential part in the decision making process is to understand the differences and similarities between the two major types of plans.
What is a Fully-insured Health Plan?
Fully-insured plans are more traditional than self-funded plans. However, fully-insured plans are generally more expensive for employers, as the name implies. The employer pays the premium directly to the insurance company, and the premium is set on an annual basis. The premium is based on the number of employees that the employer has, and those rates could change if the number of employees also changes. The premiums will also vary depending on the type of policy that the employer chooses as well.
The only thing that the employees would be responsible paying for are deductible amounts or co-pays according to the policy. Of course, the employer can also require the employee to pay a portion of the premium, which can be common.
Advantages of Fully-insured Plans
The following are a few advantages of this type of plan:
- Less risk because the insurance company deals with the claims
- No need to deal with the administrative expenses related to a health plan
- Works best for smaller employers that do not have the time or finances needed to deal with having their own insurance plan
What is a Self-funded (self-insured) Health Plans?
Larger employers are much more likely to have a self-funded plan. This option is cheaper for employers because they do not have to pay for the separate insurance carrier. Removing the insurance carrier also means that the employer is open to much higher risk than they would have been under a fully-insured plan. This is because that the company is essentially acting as their own insurance company.
To curb what could be very high, unexpected expenses, employers occasionally take out an additional insurance, such as an excess coverage plan. A stop-loss insurance program would “kick in” once an insurance claim hits a certain limit.
Advantages of Self-funded Plans
The following are few advantages of this type of plan:
- Employers can customize the plans that they offer to their employees
- There are few state regulations that you need to worry about
- Potentially lower costs for both you and your employees
Additionally, a major advantage to a self-funded plan is that you have a lot more control over not only what kind of coverage that you offer to your employees, but also the administrative aspects of the plan. There is no more waiting for the insurance company to get back to you because you can do everything in-house.
For some larger companies that can handle that type of responsibility, using a self-funded plan makes sense. Generally, when your company moves things like insurance in-house, they are less expensive as well. However, it is worth noting that managing this process in-house is much easier said than done.
Partially Funded Self-insured Plans
If your business is trying to cut on costs, without committing to a completely self-funded plan, you might want to consider other alternatives. For example, some employers use a partially self-insured health plan that has an Integrated Health Reimbursement Arrangement (HRA). The employer would increase the deductible, and then reimburse their employees for that increase by using the HRA. The employer ends up self-insuring the deductible, but still saves costs because most employees will not actually use the much higher deductible.
Self-insured Medical Reimbursement Plan
Another option that works well for smaller companies is to use a Healthcare Reimbursement Plan (HRP). This is also a version of self-insurance where the employer reimburses their employees for their individual health insurance premiums, instead of actually offering their own plan. This arrangement cuts out administrative costs and hassles, something a smaller employer should consider.
Different Businesses Have Different Needs
Each business has different goals for their health plan, and financial goals are often particularly important. Finding the right plan requires an in-depth discussion with a benefits consulting firm whose experts can tell you which plan will work best for your business. Having a health insurance option is a great investment in your employees, but finding an option that fits for your business’s budget is extremely important for everyone’s future.
Reach Out to BBG for More Information!
The experienced consultants at The Business Benefits Group can help you understand the differences between self-funded and fully-insured plans, and help you to determine which best suits the needs of your organization. If you are mulling over your options and need professional insight or would like to learn about the benefits of BBG’s business insurance services – call us directly or contact us online to request more information.