Employers of all sizes have options when it comes to offering benefits to their employees. When speaking to the health insurance marketplace, there are generally two types of funding an employer can choose: self-funded and fully-insured.
While each plan comes with its own batch of benefits and disadvantages, it’s a good idea to periodically evaluate what each one would mean for you and your business.
The biggest differentiator between the two plans is who assumes the risk for claims. In a fully-insured plan, the risk falls on the insurance company but in a self-funded plan, the person or company assumes the risk by covering the majority of the health claims themselves.
Employers with self-funded plans pay for medical claims and fees out of their general assets, basically acting as their own insurers. With the fully-insured plan, employers pay a fixed premium to an insurance carrier that then covers the medical claims.
With self-funded plans, unexpected claims can cause the cost to dramatically increase. However, it can be advantageous if employees generate a limited amount of claims, allowing the employer to keep experienced gains. Employers can also eliminate brokerage fees and potentially be able to offer lower premiums to their employees.
With fully-insured plans, the profits made by the insurance company are retained by the actual organization.
If an employer has 1,000 employees or more, a self-funded plan could be a great option. Along with reducing costs, employers gain more control over plan design. Of course, it depends on an employer’s employee population and claims experience.
Under the ACA, according to The Institute for Health Care Consumerism, self-funded plans are NOT:
- Required to provide coverage of essential health benefits (EHB)
- Required to participate in a risk-adjustment system
- Subject to single risk pool standards
- Subject to 3-1 age pricing compression and other rating mandates
- Subject to medical loss ratio (MLR) mandates
- Subject to review of premium increases
- Subject to the annual insurance fee
Employers still have the choice of fully-insured and self-funded plans, however, fully-insured plans are mostly offered through health exchanges because federal employee premium subsidies will only be available through exchanges.