What Is the Difference Between Fully Insured vs. Self-Funded Plans?

It's no secret that healthcare costs have risen dramatically over the past several decades; in fact, according to the Kaiser Family Foundation (KFF) healthcare spending rose nearly a trillion dollars between 2009 to 2019 when adjusted for inflation.  

In 2019, according to the KFF’s report estimates, healthcare spending in 2019 almost hit $3.8 billion–which comes out to about $11,582 per person. By 2028, these costs are expected to reach $6.2 trillion, or about $18,000 per person. For a closer look at the cost breakdown in healthcare spending in 2020, check out these handy charts from the American Medical Association.  

With such excessive costs to contend with, employers nationwide are searching eagerly for ways to control costs without negatively affecting employees’ access to sound healthcare coverage. As such, more and more companies are choosing to set aside funds to pay for employees’ healthcare instead of offering a more traditional group healthcare plan.  

When weighing the best plan and healthcare strategy for your workforce, savvy employers nationwide often investigate the differences between healthcare plans that are fully insured or self-funded.

What Is the Difference Between Fully Insured vs. Self-Funded?

Fully Insured Plans

A fully insured health plan is a more traditional route of insuring employees. Employers pay a fixed premium to a carrier that will cover the employees’ medical claims. Although they can be more expensive, employers can save money by providing exceptional service to keep them happy and healthy, which can serve as a powerful tool to attract and retain talent.  

In fully insured health plans, employers pay a premium to the insurance carrier. The premium rates are annually fixed based on your enrolled employees in the plan each month and will only change if your number of employees changes. Employees are required to pay their deductibles or copays.

The main downside when choosing a fully insured health plan is that it stops you from customizing your health plan completely. However, this option does eliminate the administrative duties and expenses often associated with a self-insured health plan. The insurance carrier deals with the employee claims, resulting in lower risk for the employer too.

Self-Funded Plans

When selecting a self-funded health plan, also known as a self-insured health plan, the employer runs the health plan and assumes all the financial risk for providing benefits to employees. Self-funded plans are more flexible than fully insured plans because they give you the potential to design a healthcare plan that meets all employee needs; self-funded plans can also reduce the cost of premiums as a result.

However, if opting for a self-funded health plan, employers must calculate the fixed and variable costs for the plan. Costs can include administrative fees, stop-loss premiums, and other set fees. Additional costs include healthcare claim payouts that vary each month and are contingent on submissions from employees and dependents.

To mitigate the financial risk mentioned above from a self-insured health plan, employers can implement stop-loss or excess-loss insurance, which reimburses the holder for claims that exceed a set amount. This can be used to cover claims for one covered individual or cover claims that exceed the level for a group of covered employees.  

Although self-funded plans can save employers money, self-funded plans require more planning and likely warrant a dedicated internal team to navigate the inherent complexities.  

Which Plan Is Right for You?

If you want to know more about which plan type is right for your business, the next step is to connect with a top-rated, experienced employee benefits broker.  

Looking for more exclusive content? Listen to our latest episode of This Week in Benefits, and check out our By the Numbers blog series.

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