Full and self-insurance: Knowing the difference

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Employers have to make a serious decision: What kind of health plan to offer workers? Before they decide, businesses should know the difference between offering fully-insured and self-insured health plans.

Here are some of the specifics for each type of plan and the deciding factors employers should consider.

Fully-insured
Most companies are likely familiar with this model, as it has become standard. Typically, a company using this policy will pay the insurance carrier a premium for each of its employees. Although the premium price can vary from company to company, it is fixed for the year barring any enrollment changes.

The employees and their dependents pay a deductible while the carrier assumes the whole risk of the plan, billing and collecting premiums as necessary. This is at the core of the fully-insured plan’s advantages.

Since the employer doesn’t have to face risk itself, they have less liability concern, and are also free from performing other related, time-consuming tasks. On top of all this, the fully-insured setup is simply more traditional and established.

“The fully-insured setup is more traditional…but it’s not the only option.”

This can understandably make it attractive to owners who want a simple structure and less involvement. But it’s not the only option.

Self-insured
Instead of going through an outside carrier, companies with self insurance provide the plan itself. This puts them in charge of crucial plan decisions, and gives them the responsibility that would otherwise fall to an insurance carrier.

The employer can still contract third parties, but unlike with the previous model, these other entities work on the company’s terms. This may require more work on the employer’s part but comes with several possible advantages.

First of all, a self-insured plan gives the employer greater say and flexibility in their plan. This also extends to financial benefits, since self-insuring could be more cost-effective overall, if employers reserve certain funds for excessive claims costs in advance. Lastly, the employer could offer more than one plan to its workforce for more specificity.

Deciding factors
A consultant can help businesses sort through all of their plan options and make the best selection. Some of the most determining factors include:

  • Compliance needs: Self-funded plans will have to meet a series of state and federal regulations. It’s worth asking whether the challenge of doing so will be worth it for certain employers.
  • Location: Similarly, since state regulations differ, the ones that apply could influence whether or not a self-insured plan is best.
  • Size: Perhaps the most obvious factor, the number of employees tends to determine how effective self-insuring really is. Larger companies, with more than 150 employees, tend to be better candidates for self-funded insurance. Collectives such as trusts and other groups could also be right for this model.

“As an agency we are really focused on controlling claims costs,” said Troy Kane, PayneWest Insurance Managing Director, Benefit Planning.

PayneWest Insurance will help businesses of any size determine which approach to health plans is best. Contact us today to learn more.