At some point, every small business has to determine what to do for health insurance. About 50 percent of small businesses with 3-9 workers offer their employees some type of health insurance benefits. Approximately 71 percent of small businesses with 10-24 employees offer health insurance benefits, and 85 percent with 25-49 employees offer them.
No matter the size of the employer, health insurance benefits are a big deal to employees. As healthcare costs continue to rise, employers are eagerly searching for ways to control costs without negatively impacting their employees’ health coverage.
In this article, we’ll explore the two most common ways to structure a health insurance plan, fully-insured and self-insured so you can understand all the options you have available to you.
Fully-Funded Health Plans
A fully-insured health plan is the traditional route of insuring employees. Employers pay a fixed premium to an insurance carrier that in turn covers employees’ medical claims. Fully-insured health plans are typically more expensive, but they can save you money in the long run by providing great benefits to your employees—a proven way to increase retention. Other potential downsides include higher taxes, potential for rate hikes, and tough carrier negotiations.
In a fully-insured plan, you pay a premium to an insurance carrier. The premium rates are annually fixed based on the number of enrolled employees you have in the plan each month and will only change if the number of employees changes. The insurance carrier pays claims based on the benefit outline and employees must pay any deductibles or copays required for covered services under the policy.
Fully-insured plans can be rigid because they prevent you from customizing your health plan completely, but they’re popular because they eliminate the administrative duties and expenses related to a self-insured health plan. Your risk is lowered because the insurance carrier has the job of dealing with all employee claims.
Self-Funded Health Plans
With a self-insured, or self-funded, health plan, you run your own health plan and assume all financial risk for providing benefits to your employees. Self-funded plans are more flexible than traditional, fully-insured plans because they’re less regulated and give you the opportunity to design a healthcare plan to meet your employees’ unique needs. Additionally, self-insured health plans help you save significantly on premium costs.
In a self-insured health plan, you calculate the fixed and variable costs for the plan. These costs include administrative fees, stop-loss premiums, and any other set fees. This can also include staff management fees, third-party administrator fees, or software administration fees. Other costs include healthcare claim payouts which vary from month to month depending on submissions from employees and their dependents.
To reduce the risk that comes with self-insured plans, you can implement stop-loss or excess-loss insurance which will reimburse you for claims that exceed a set amount. This coverage can be used to cover catastrophic claims on one covered person (AKA specific coverage), or cover claims that significantly exceed the expected level for the group of covered persons (AKA aggregate coverage).
While fully-insured plans offer predictability and safety, although at a cost, the benefits of self-funded plans are becoming more attractive. Schedule a call with one of our team advisors to help you find a plan that aligns with your goals and your budget. If you have immediate questions, call us toll free at 330-633-3837 or click here to email us your name and phone number for us to call you.