Understanding health insurance is not always easy. There are multiple types available in the United States, from Marketplace, Tricare and COBRA to Medicare and Medicaid. Then there are the various categories of plans, including Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Exclusive Provider Organizations (EPOs) and Point of Service (POS).
If you’re not already confused, we’re going to throw another sort of health plan at you: fully-insured. By the time you finish reading this blog, though, you’ll know all about it — both pros and cons.
What are Fully-Insured Health Plans?
One of the simplest definitions of fully-insured health plans comes from SHRM. The organization describes it as a plan in which employers pay a fixed per-member premium — typically monthly – to a third-party commercial insurance carrier that covers their employees’ medical claims. This often includes administrative expenses and stop-loss and employee fees but not things like deductibles and copays. That’s because employers using this type of plan generally cost-share with employees through copays and payroll deductions.
Fully-insured health plans are different from self-insured ones, in which the employer is responsible for paying the bills. Most employers are fully-insured — as are many small group plans.
Plan and Pricing Determination of a Fully-Insured Health Plan for Employees
Average annual premiums for fully-insured plans have risen 13 percent over the past five years. Just how are these rates calculated, though?
First, it is important to note that premium rates are annually fixed. They’re determined by the insurance company and are based on the number of enrolled employees, their health profile, plan usage and sometimes location. Other factors are anticipated claims cost, administrative fees, applicable taxes and stop-loss coverage.
The premium price can change each year — depending on how the plan performs. It also increases or decreases if the number of employees changes.
Benefits of Fully-Insured Health Plans
Just as with most types of health insurance, there are pros and cons of fully-insured plans. The primary advantages consist of financial predictability, reduced employer risk and more convenience.
Businesses of all sizes appreciate financial predictability, especially when inflation is high and costs continue rising. Fully-insured health plans offer this predictability by ensuring employers know in advance their premium costs. They’re able to proactively budget and plan for these consistent costs and face fewer monetary variances. A bonus? Fully-insured health plan premiums are tax-deductible.
By having a health insurance company deal with employee claims, employers who utilize fully-insured plans lower their financial risk. They also enjoy a lack of price volatility because the carrier covers any overages due to unexpected claims.
The administrative duties necessary for administering a health plan are time-consuming. Most employers want to be dealing with growing their business, not filing insurance claims. Fully-insured health plans enable employers to hand the administration of employee insurance off to the insurance company, a feature far more convenient than with self-insured plans.
Drawbacks of Fully-Insured Health Plans
It probably won’t surprise you that fully-insured health plans are sometimes more expensive than self-insured ones. That convenience we just mentioned comes at a cost — and a higher tax burden. These plans also offer less customization but are regulated more.
Because insurance companies who offer fully-insured health plans negotiate rates directly with healthcare providers, the premiums and other costs of care are typically more expensive than those of self-insured plans. Employers who select fully-insured health plans pay premium taxes of two to three percent and do not get any refunds for unused care. And, the price negotiation process has to be completed each year.
With fully-insured plans, employers have limited flexibility to customize plans. The insurance carrier determines the design of the plan, the network it includes and the premium rates. That means employees have limited control over their care options. Plus, insurance companies often require prior authorization for certain treatments or medications, which can be frustrating for employees.
All fully-insured health insurance plans are subject to state regulations and some federal mandates and standards (i.e., laws the Affordable Care Act, HIPAA and COBRA). Self-funded plans are only regulated federally under the Employee Retirement Income Security Act (ERISA).
Are Federally-Insured Health Plans Better Than Self-Funded Ones?
Although fully-insured plans are more common than those that are self-funded, they are not the answer for every employer. The type of plan you choose should, of course, be one that best meets the needs of both you and your employees.
If you want to customize the health plan you offer your employees, self-insured is your best choice. If you’re concerned about the risk of self-insured plans, you can invest in stop-loss insurance. This addition will reimburse the employer for claims that exceed a set amount.
As we mentioned earlier in this blog, self-funded health plans are typically less expensive, so if you’re looking for the cheapest option, you have your answer. Larger companies often use self-insured plans because they have the financial resources to pay for medical claims through their revenue.
What Does 100% Health Insurance Mean?
The answer to this question is simple: 100 percent insurance occurs when an employer pays the totality of its employees’ health plan premiums. In many cases, it only pays for the employee, not any dependents.
Hopefully, this blog has explained to you what fully-insured health plans are and what employers should evaluate before they select this option. If you simply want to focus on your business goals and objectives, though, consider working with the employer services team at StenTam.
We offer comprehensive employer services to help you build and refine best-in-class benefit solutions. Contact us today to find out how easy — and affordable — it is to get a comprehensive benefits strategy customized to meet your specific business needs. Also, check out our blog on how offering quality health benefits helps recruit and retain skilled employees.