Fully-Insured vs. Self-Insured Medical Plans: Which Is Best?
There are two main types of health insurance when it comes to employer-sponsored insurance: fully-insured and self-insured. These two terms quickly become confusing, especially as health insurance legislation continues to change in the United States.
While more employers are beginning to recognize why offering comprehensive health insurance is a smart decision, there’s still a lack of clarity around what it means to offer fully-insured or self-insured medical insurance. In this guide, we’ll break down the two options to help with the decision-making process.
Why Offer Medical Insurance?
First, let’s address why employers should consider offering medical insurance in the first place. While employers under 50 full-time employees are not required to offer health insurance under the employer mandate, that doesn’t mean they shouldn’t also offer some form of coverage.
We live in an employee-driven market. Top talent is hard to find, and it’s even harder to maintain in many industries. According to a recent Glassdoor study, health insurance is one of the benefits that make employees the most satisfied with their job. More satisfied employees means less turnover. Of course, healthy employees are also more productive.
Fully-Insured Plans
You now understand why health insurance is such a priority for businesses of all sizes today, but what makes full-insured plans different from self-insured plans? To start, these are two very distinct approaches for offering employer-sponsored group medical plans. With a fully insured plan, the employer provides coverage through a traditional insurance company. The insurance provider will cover the risk, and this lessens the financial strain on the employees.
Large businesses are more likely to choose fully-insured plans through a traditional insurance provider because they generally have greater buyer power. That means they can secure a better deal for both themselves and their employees. There are no financial surprises, and the insurance company deals with claims and the financial risk. You can browse group coverage plans for small businesses and large businesses at any online health insurance marketplace. You can browse group coverage plans for small businesses and large businesses at any online health insurance marketplace
Self-Insured Plans
Next, let’s take a closer look at self-insured plans and how they differ from fully-insured plans. The risk falls upon the employer in this case, since the employer doesn’t go through a traditional insurance provider. In essence, the employer itself becomes the insurance. The business itself will pay for employee medical claims and any fees.
Why might a business choose to act as its own health insurance for employees? In general, it’s a more affordable option than a group plan through a provider since there’s no third-party. However, it’s also more risky since the business will need to handle even unexpected, costly claims. Self-insured plans are more often chosen by smaller businesses that might not be able to afford the higher premiums of a traditional group plan.
How to Choose the Best Plan
Now that you understand how both fully-insured and self-insured plans work, you’re more prepared to make the right decision about your own business. No plan is completely perfect for any company, but you’ll want to consider the following factors in your decision:
- Number of employees and their dependents
- Your budget for monthly premiums
- Coverage options in your area
In general, if you’re a smaller business it might make more sense to opt for a self-insured plan while a larger enterprise can afford the added expense of a traditional provider. Small businesses can take advantage of self-insured plans through stop-loss plans and other parameters to set boundaries on coverage. However, they’ll also have to handle the added responsibility of being the main provider.
Either way, as long as you’re taking steps to provide insurance to your employees, you’re taking steps in the right direction. Don’t let the stigma around health insurance keep you from making this smart decision.
