Healthcare costs continue to skyrocket, and many employers are searching for ways to control costs while keeping benefits affordable and attractive to employees. For some employers, a self-funded health plan can be an effective strategy for lowering costs. Many employers have adopted these plans in recent years. According to a 2020 Kaiser Family Foundation Employer Health Benefits Survey, 67% of employees who receive employer-sponsored health coverage obtain it from self-funded health plans, which is a 23% increase since 1999.
Changing from a fully insured to a self funded health plan is a big decision for any organization that often comes with wide-ranging impacts. While transitioning to a self-funded health plan can present opportunities for employers of all sizes, it’s important that employers understand what to expect when implementing this type of health plan.
This blog provides a general overview of the benefits, risks, and differences between self funded insurance vs fully insured.
With a self-funded health plan, the employer assumes the financial risks associated with providing health care benefits to its employees. Instead of paying a fixed premium to an insurer (like in a fully insured health plan), the employer collects premiums from enrollees and pays its employees and their dependents’ medical claims out of pocket as they’re incurred. Employers can administer their health plans themselves or contract with organizations that are third-party administrators (TPAs).
Let's take a closer look at self-funded vs Fully insured health plans as it pertains to risk, plan architecture, and payment structure.
Fully insured - The carrier ultimately holds the risk in a given year. That means whether claims are good or bad they are taking that on and the employer pays the same amount every month.
VS.
Self funded - the employer is taking on the majority of the risk. They are now paying for claims as they come in. And if those claims are good, they pay less. If those claims are not as good, they pay a little bit more.
Fully insured - The insurance carrier ultimately controls the entire plan architecture. That one insurance carrier is the same for medical claims, prescription drug claims, handling the customer service, and they even dictate what the designs of the plan are.
VS.
Self funded - The employer controls the plan architecture. Which means they can still have everything be one carrier but they now have the ultimate control to include multiple parties. The employer may choose somebody different for prescription drug program than their medical plan. In addition they also control the plan designs. So employers in a self funded environment set their own deductibles, co-pays, and out of pocket maximums.
Fully insured - there’s a flat monthly premium that only fluctuates based on headcount or family size.
VS.
Self Funded - there’s 3 main components:
There's several reasons why an employer may choose to move from a fully insured to a self-funded health plan, including:
Despite the potential benefits, self-funded health plans can also present significant financial risks when claims exceed employers’ cash reserves. Many organizations mitigate this risk by purchasing stop-loss insurance, which limits the amount claims employers pay each year.
Altering health plans may present challenges that must be addressed. Before transitioning from a fully insured to a self funded health plan, employers should evaluate the following considerations:
Transitioning from a fully insured to a self funded health plan can be a long process. Employers should consider these strategies when preparing to move to a self-funded health plan:
An effective strategy can help employers to transition from fully insured to self insured smoothly and avoid unnecessary challenges and delays.
In summary, self funded health plans operate much differently than fully insured health plans. It's highly recommended to work with a self funded health plan expert so employers can make a successful transition.
Sources: Mike Kroupa & Zywave
Mike Kroupa
Self-Funded Group Health Plan Consultant
Connor & Gallagher OneSource (CGO)
Mike Kroupa has consulted on over 250 self-funded health plans over his 15-year career in the group health insurance industry. Mike started his career as an actuary at Mercer where he spent 5 years specializing in large, multi-site employers. Prior to joining Connor & Gallagher OneSource (CGO), Mike spent 10 years at HUB International where he led their data analytics team of 20 people and over 180 self-funded clients. Mike's passion is to help employers remodel their health plans to build health plans employees love at an affordable price.
This blog is for educational and/or informational purposes only and does not constitute legal advice.