Fully Insured vs. Self-Funded
HR Support

By Kari Hoback, Senior Account Manager

September 20, 2022

While the cost of health care continues to rise, and in turn the cost of health insurance, why would an employer decide to move from a fully insured plan to a self-funded plan?  In a word – opportunity.

With a fully insured plan, the premiums are paid each month and, regardless of the level of claims that are paid out, all of the premium paid remains with the insurer.  If the claims level is lower than expected, the excess premium is a deposit against future claims, and any profit is retained by the insurer.  If the claims level is higher than expected, the premiums are increased significantly the following year.

With a self-funded plan, the fixed costs consist of administrative fees to adjudicate the claims and stop loss insurance to protect against large claims.  The actual cost of claims is paid by the employer, up to a pre-determined level.  If claims are lower than expected, the employer retains that savings – this is the opportunity created by self-funding.  If claims are higher than expected, the stop loss carrier pays the claims above the threshold, providing protection for the employer.

Typically, the fixed costs plus the maximum claims cost is higher than a fully insured premium; this is the risk an employer takes in order to have an opportunity to save during years when the claims are lower.

There are numerous ways to creatively self-fund your health insurance plan, including level funding and group captives.  We will explore these topics in future posts.

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