There’s been a lot of buzz about self-funding vs. fully insured plans, so let’s discuss the numbers. Health care costs in the US have increased every year since 1960. And according to Nelson Griswold, an employee benefit advisor, family health insurance premiums nearly tripled from 1999-2018, while wages during that time increased by just 17%.
The good news is that traditional health care is changing. Employer-owned cooperatives, like The Alliance, are introducing the next generation of health care by empowering employers to gain access to their data and provide high-value health care at low-cost providers. And while the benefits year may have just kicked off for some, for those organizations that may be considering self-funding in the future, we’ve compiled information on the risks, benefits, and differences between fully insured and self-funded plans.
Self-Funded vs. Fully Insured
Fully insured is what most people mean when they talk about insurance. The employer pays a premium to the insurance carrier on behalf of each employee. In return, the carrier pays medical claims for covered services that are beyond the out-of-pocket maximum for which an individual or family is responsible. In a fully insured model, it doesn’t matter whether an employee has a medical procedure that costs $20,000 or $80,000. The insurance company has contracted to pay all claims and assume all financial risk. The fully insured model may mean that employers pay higher premiums to cover the risks and generate profits for insurance companies.
Self-funded insurance is almost the opposite. The employer pays the claims of its employees, so it matters how much an individual pays for care. And because there’s always the possibility of claims being higher than expected, most self-funded plans have a form of insurance in place, called “reinsurance” or “stop-loss insurance.” A third-party administrator (TPA) processes the medical claims and issues benefits on behalf of the employer. But while the employer may assume the risk, they also keep the difference, including interest income.
The Benefits of Self-Funding
Self-funding your health insurance provides you with full access to claims and pharmaceutical data you can use – because you own it – to guide your plan design and decision-making. The Alliance provides its members with accurate, easy-to-access information comparing cost and quality from providers. This enables employers to be informed when deciding their provider network and benefits plan design.
Depending on the needs of your employee population, self-funding can give employers the option to approach provider contracting differently. By offering tiered options, you can still give employees choice while also steering them to the most cost-effective options. Employers can also consider broader or narrower networks than are often available through the traditional fully insured model. And having the ability to make the recommended customizations related to steering to high-quality, low-cost providers can also help keep costs in check for the employer and employees.
Being self-insured can also help support company culture. If an organization cares about the well-being of its employees, they can align their benefits to those values. And when an employer shows that they believe their employees’ health is important, it sets an expectation for employees to become more mindful of their health. And can lead to higher employee satisfaction.
Want to learn more?
Employers interested in learning more about self-funding can contact the Business Development Team for more information, and to see if self-funding is right for your organization.