A: The main difference between self-funded and fully insured health plans is who pays claims costs and assumes financial risk.
Under a fully insured plan, the employer pays a fixed, monthly premium to an insurance carrier. In exchange, the carrier pays covered claims and assumes the financial risk. This approach offers predictable monthly costs but provides less visibility into health care spending and fewer opportunities to influence long-term costs.
With a self-funded plan, the employer funds healthcare claims as they occur rather than paying a fixed premium for claim costs. Claims are typically administered by a third-party administrator (TPA) or insurance carrier, while the employer retains the financial responsibility for eligible claims.
|
Fully Insured |
Self-Funded |
|
Fixed monthly premiums |
Employer funds claims as they occur |
|
Carrier assumes financial risk |
Employer assumes risk, typically protected by stop-loss insurance |
|
Predictable monthly costs |
Costs vary based on claims activity |
|
Limited access to detailed claims data |
Detailed claims data and cost transparency |
|
Premium taxes included in premiums |
Generally, not subject to state premium taxes |
|
Renewal rates based on carrier underwriting |
Costs more directly reflect the employer's claims experience |
|
Standard carrier plan designs |
Greater flexibility to customize benefits and vendor partnerships |
|
Carrier retains underwriting gains |
Employer retains savings when claims are lower than expected |
Advances in level-funded and other alternate-funding arrangements have made self-funded strategies accessible to employers with as few as five employees in some cases. While not every employer is a good candidate, organizations with stable enrollment, a commitment to managing healthcare costs, and a long-term benefits strategy may find these options worth evaluating.
There is no one-size-fits-all funding strategy. Our benefits consultants can evaluate multiple funding scenarios to help you determine which approach best aligns with your organization's financial goals, workforce needs and long-term benefits strategy. Connect with us to learn more.
