Defining the Difference: Fully Insured vs. Self-Funded
Today’s health care system is riddled with complex plan designs and rigorous government regulations. States have not standardized their regulations to one sensible approach. However, in recent years Federal regulations have come to provide higher levels of consumer protection than ever before.
For an employer (or Plan Sponsor) to understand the difference between “fully insured” health plans and self-funded health plans, it is easier to first discuss the typical buying arrangement:
An employer, or plan sponsor, simply facilitates the purchase of a group contract that insures each of his employees directly. In essence, the insurance certificate contains an insuring clause or a promise to pay benefits. The insurance carrier makes this promise to each employee. The Plan Sponsor simply facilitates the purchase of the group contract for purposes of benefit selection, rate guarantees, and premium collection.
These plans work a little differently. The employer, or Plan Sponsor, makes the promise to pay benefits to each employee, and then purchases administrative services (handling the money and the paperwork) and stop-loss insurance to protect the Plan from unexpected financial obligations of that promise.
Among the benefits of self-funding, the following elements highlight potential advantages that cannot be ignored:
- Composite Rates
Simplify Defined Contribution
- No PPACA Rebate Reporting
Keep the Claims Savings in the Plan
- Standard Benefits Across State Lines
No need for multiple plans across state lines
- Rates You Deserve
Earn better rates for deserving groups