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Fully Insured Vs. Self-Insured Medical Plans

When you are deciding how to set up your medical plan, you should carefully consider the benefits of a self-insurance fund versus a fully insured fund. Each plan design functions differently and provides health insurance ideal to different types of companies. Your employees will depend on you to provide the necessary coverage to them either way.

  1. Types

    • A fully insured medical plan is one where the company purchases health insurance from a health insurance company. The health insurance company then manages the risk of the employer's health care costs. A self-insured medical plan is one where the employer retains the risk of insurance himself. The plan must be funded by the employer and claims are paid out of funds specifically set aside for health care costs.

    Benefit

    • The benefit of a fully insured plan is that the employer does not have to worry about paying health insurance claims. Less money may be spent on administrative costs. The benefit of a self-insured plan is that the employer is able to control the claims process and might save money on insurance premiums and health care costs if claims are low.

    Disadvantage

    • The disadvantage to a fully insured plan may be rising premiums. If premiums increase every year, and the company is paying some or all of the premiums for the employees, these costs could become prohibitive to the company's bottom line. However, a self-insured fund might be worse. If claims are significant, the employer could face a serious financial problem since it is responsible for paying medical claims. If claims are high, the employer may have to end the plan, deny claims or go out of business. Additionally, state laws regulate self-insurance plans and often mandate minimum funding levels. This money cannot be used to grow the business or for any other purpose the company might need it for.

    Consideration

    • Instead of fully self-insuring or buying a policy for all health care costs, a company could be partially self-insured. If a company has significant and reliable income, the company could provide a partially self-insured medical plan that purchases a health insurance policy for health care costs that exceed a maximum dollar amount. This allows the employer control over medical costs while still protecting the employer from catastrophic health care claims.

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