Fully Insured vs Self Insured vs Level Funded Health Plans

The type of funding arrangement you choose for your company’s insurance plan will have an affect on your company’s bottom line. This responsibility might seem overwhelming, but with an adequate amount of research and expert guidance to help along the way, you can feel confident with your health plan funding arrangement of choice.

Approaching the selection process armed with the knowledge needed for an informed decision will give you confidence in your selection, regardless of which direction you choose to go. Understanding the difference between plan types is the first step in this process. We will explain the differences between fully insured, self insured, and level funded health plans, along with the pros and cons of each.

Fully Insured Plans

Fully insured plans are those you purchase from an insurance carrier for a set monthly premium. These premiums stay the same over the course of the year. At your plan’s anniversary date, premiums can then be raised or lowered by the insurance company.

Several factors go into establishing premium amounts for fully insured plans, such as:

• Company size – number of insured employees and dependents
• Employees’ health conditions
• Claims experience – number and cost of claims filed by your employees annually (a large number of costly claims will result in higher premiums in following years)
• Loss Ratio – claims costs divided by premiums collected

Employers who choose fully insured plans get to enjoy the benefit of insurance carriers assuming the risk of costs associated with medical claims. If your plan incurs more claims than the collected premium covers during the current year, your premiums still remain level through the end of your contract year. Your company benefits in this type of scenario. On the contrary, this means that your company doesn’t benefit when your employees are healthy with low claims costs. In this case, your premiums for the year stay the same, and you won’t receive a refund. That’s where the difference between fully insured vs self insured plans might spark your interest.

Self Insured Plans

A self insured health plan is one that the employer owns, but pays somebody else to administer the claims. You have a network of providers from which to choose, and you can buy stop-loss insurance to protect you in the case of particularly large claims. Otherwise, a few critically ill employees may deliver a serious financial blow.

Your monthly financial contribution can vary greatly, as the employer has to make payments as claims get filed. This means that if you have a high rate of employee claims, or numerous severely ill employees, your costs can skyrocket (again, stop-loss insurance can help ease this financial loss).

Contrary to fully insured plans, the upside to a self insured medical plan is that you save big in the years that your employees stay healthy, with lower claim costs. As another benefit you will have access to claims data, allowing you to tailor your plan to better meet the needs of your employees in the future. Note: This data does not give you access to individual medical information that is covered by HIPAA.

The amount of risk you assume is the central difference when considering fully insured vs self insured plans, and this aspect needs to be carefully considered.

Level Funded Plans

Level funded health plans are a hybrid that incorporates elements of both fully insured and self funded insurance offerings. Often touted as an excellent choice for small businesses, level funded plans charge a set rate for premiums each month, with companies receiving refunds when the amount paid in premiums exceeds that which was actually filed in claims for the year. If the opposite occurs, with the business filing more in claims than it paid in premiums, stop-loss measures kick in to cover the difference.

The level funded plan premiums are based on underwriting your workforce’s health status and claims experience, not based on a pooled community-rated methodology. This means you will truly benefit from having employees who take care of their bodies and health. When assessing fully insured vs self insured plans, the former gives you peace of mind in knowing that your employees will be covered regardless of the number of claims which are filed, while the latter gives you the benefit of paying less in the years your employees stay healthy (while costing you more when larger, expensive claims are filed). Level funding can provide you with the benefits of both fully insured and self insured plans, reducing the downsides of either option separately.

However, it is important to note that self funding carries more risk than fully insured plans, along with being accompanied by greater regulations. This can make remaining compliant slightly more challenging. These plans usually require a minimum number of employees within your organization, with monthly premiums having the potential to exceed the other two options if your workforce has health issues.

Which Insurance Plan is Right for Your Employees?

When choosing a health plan for your company, several factors must come into play. When comparing fully insured vs self insured, you need to determine how much risk you are willing to assume. This means considering the current health of your workers, along with key demographic features that could indicate whether one plan may be a smarter choice than the others. For example, an older workforce will likely file more claims than a younger group of workers would.

In addition to risk assessment, it is important to take into account the preferences of your employees as well. Health insurance is the most important employee benefit of any job offer, and the quality of that benefit does wonders in retaining and attracting an expert workforce.

Altura Benefits

Altura Benefits can explain your choices of health insurance plans in an easy-to-understand manner, and guide you in the process of choosing the right plan for your company. Our expert staff has decades of experience in employee benefits solutions, and our insights will help you find the best possible solution for your coverage needs. Choosing the right plan is complicated, but Altura can make this process simple and give you confidence in selecting the perfect plan for your team.

For more information on our services, call 801-263-2900 or fill out this convenient contact form. Altura’s dedicated and enthusiastic team will gladly answer any/all of your health insurance questions. Let’s get started!