Self-Insured vs Fully-Insured: What’s the difference?
Small businesses continue to struggle to find great, quality benefits for their employees while controlling cost. If you are interested in finding more affordable methods of Healthcare please read our overview of the difference between self and fully funded plans.
According to a recent report by the Employee Benefits Research Institute (EBRI), approximately 50 million workers and their dependents received benefits through self-insured group health plans sponsored by their employers. This represents 33% of the 150 million total participants in private employment-based plans nationwide.
Self-funded plans are more customizable than traditional health plans. The employer maintains control over the health plan reserves, and there may be money left over at the end of the year that the employer can either use towards lower premiums or other business needs.
Is a self-funded plan a fit for your small business?
The right partner is required to manage a self-funded plan. A Third-Party Administrator (TPA) manages the complexity of the plan administratively so that your employees have a similar experience to a traditional health plan, the difference is that the employer OWNS the plan, not an insurance company.
Level-funded plans are a hybrid between self and fully insured plans and are the best option for businesses under 300 employees.
Comparing Self-insured vs Fully-Insured
Pros of Fully-Insured Plans:
- Employers face fewer cost changes from month to month
- Claims are managed by the insurance provider
- Costs are fixed each month
- The insurance provider assumes all the risk
Pros of Self-Insured Plans:
- Self-insured plans allow employers to save in monthly premiums
- Stop-loss insurance keeps companies from taking on all the financial risk
- Employers have more control over benefits
- Remove insurer profit from their healthcare costs
Cons of Fully-Insured Plans:
- The cost of premiums are 15-20% higher
- No negotiation of claims
- Employers negotiate with insurers every year
- No profitability or access to unused claims
- Employer tax burdens are at times higher
Cons of Self-Insured Plans:
- The company takes more of the risk
- Savings sometimes take years to develop
- Employers are responsible for services
- Companies deal with all aspects of insurance, including denied claims
No one plan is right for everyone. Both fully insured plans and self-insured plans have their own set of pros and cons which make them right for some companies and a poor choice for others.
Level Funded plans are also popular with small companies. A level-funded health plan combines the cost savings and customization of self-funding with the financial safety and predictability of fully funded plans. Self-insured health insurance plans make sense for approximately 70 percent of companies that have less than 300 employees and adequate cash flow.
Working with a company that understands the inner workings of level-funded plans is a great way to explore if these types of plans are truly a better option.
About Makina Benefits
Makina Benefits is an Austin based healthcare administrator focused on helping small to medium-sized businesses find simple-to-understand and affordable ways to take control of their medical coverage. Makina works with many organizations to understand the benefits of self-insured healthcare options. If you would like to schedule a meeting you can contact our team at makinabenefits.com.
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