One of the first things you have to do when you decide to set up (or renew) a health plan for your employees is determine how it should be structured — fully insured or self-funded External Site. While a fully insured arrangement is the most traditional and popular format, don’t be afraid to ask if your business might be ready for self-funding.
Differences between being fully insured and self-funded
A fully insured business:
- Pays a fixed monthly premium each year that is based on the number of employees enrolled in the plan.
- Experiences no change in monthly premium during the year unless the number of enrolled employees changes.
- Premiums are the same per employee, regardless of the services they use.
- Has the insurance carrier pay claims based on the agreed upon coverage benefits and the covered employees and their dependents are responsible for paying any agreed upon deductibles or copays.
A self-funded business:
- Manages your own plan.
- Directly funds the claims of the business and only pays for the health care services used by your employees and covered dependents.
- Experience more variability in premium each month because you pay claims as they’re incurred, in addition to fixed administrative costs.
- Can save money on premiums but are also exposed to greater risk if more claims than expected occur.
Which funding option is right for you and your business? Take the test.
Fully insured characteristics. Do you:
- Have a lower tolerance for risk?
- Prefer paying a steady, predictable premium?
- Not have the time, resources or personnel to create and manage your plan?
- Crave simplicity with your health plan?
Self-funded characteristics. Do you:
- Possess the willingness to accept more risk to save money on premiums?
- Have the time, ability and desire to actively manage your health plan?
- Employ more than 25 employees on a consistent basis ?
- Have a strong balance sheet, steady cash flow and enough reserves to ensure you can pay higher-than-expected claims?
- Want the opportunity to fine-tune copay amounts, benefit designs and customize well-being programs?
Fully insured considerations
Many employers go the fully insured route because it’s the most traditional and familiar way to structure a health insurance plan. Simple, straightforward and stable.
Choosing a fully insured option is similar to a “budget billing” option with an energy company. You know what you’re going to pay each month, and some months will be more financially beneficial than others.
If you currently have or believe you will have a lot of large claimants in the future, you may want the protection being fully insured provides. Or if you’re uncomfortable with how the variability of large claims will affect your cash flow and stop loss premiums, the fully insured option may also be best for you.
With self-funding you’re betting on your company’s ability to manage your plan and on the health of your overall employee population. If you’re worried about having to pay for massive, unbudgeted claims, self-funding also offers protection for your business against higher-than-expected claims with stop-loss coverage. The stop-loss coverage just becomes part of the fixed costs of self-funding, along with the aforementioned administrative fees.
You also need to have the willingness to do more compliance, regulatory and tax work, like handling personal health information and reporting added requirements to the government. But with this responsibility comes opportunity, as you get access to aggregated claims and utilization data that you can analyze and use to customize your health plan.
Self-funding takes a long-term view of health insurance costs and improving the health of your employees. It probably won't provide huge, immediate savings, but over time you'll be able to tweak benefits and well-being programs to fit what you and your employees need.
If you’re a fully insured employer whose employees have historically exhibited low claims usage, you may want to consider self-funding to experience those savings. However, you also need to consider all the other variables mentioned above and decide if they want to take on extra risk at the end of the day.
Compare the funding options
Download materials from the Wellmark Marketing toolkit to see which option may be right for you.
- Funding options for your health plan (M-21104)
- Fully insured administrative services (M-23467)
- Self-funded administrative services (M-23468)
Let's talk funding options for your business
Contact your authorized Wellmark Blue Cross and Blue Shield account representative if you want assistance determining if a self-funded or fully insured arrangement is right for your business. They can also help you transition from one funding option to the other at your time of renewal and give you information about your new health plan responsibilities when changing funding arrangements.
For example, if you change to self-funding and your business is a public body in Iowa, you would also need to comply with some reserve requirements from the state. Questions? Contact your authorized Wellmark account representative, or email us at email@example.com Send Email.