Understanding Health Insurance: Fully Insured vs. Self-Insured

When it comes to offering a group health plan to your employees, understanding the difference between “fully insured” and “self-insured” is crucial. These terms describe the two main types of health insurance plan designs that employers can offer their employees. In some cases, these plans may be referred to as “fully funded” or “self-funded” plans, respectively. A plan design that combines the two is known as a level-funded plan.

What Does Fully Insured Mean?

A fully insured health plan is the more traditional way to structure an employer-sponsored health plan. With a fully insured health plan, the company pays a premium to the insurance carrier. The premium rates are fixed for a year, based on the number of employees enrolled in the plan each month. The insurance carrier collects the premiums and pays the health care claims based on the coverage benefits outlined in the policy purchased.

What Does Self-Insured Mean?

In contrast, a self-insured (or self-funded) plan is one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, self-insured employers pay for each out-of-pocket claim as they are incurred instead of paying a fixed premium to an insurance carrier.

What is a Level-Funded Plan?

A level-funded plan is a type of health insurance plan that combines the cost savings and customization of self-insurance with the stability and predictability of fully-insured plans. With level funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administrative and other fees, and the rest goes into a claims fund.

In conclusion, understanding the differences between fully insured, self-insured, and level-funded plans can help you make an informed decision about the best type of health insurance for your business. Remember, the right choice depends on the specific needs and circumstances of your company and employees.

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