When it comes to finding a group health insurance plan for your business, you need to consider both the financial impact on your organization as well as the needs of your employees. To people who aren’t well versed in health insurance, this task can seem complex due to so many factors. With that said, choosing the proper group plan can help you to increase employee satisfaction, retain and attract top talent. Not to mention you can benefit from tax incentives. Needless to say, with this type of decision, there is a lot at stake. When reviewing your employee-sponsored health options, there are a lot of details to pay attention to. One of the more prominent options that you will have to decide between is whether you want to offer a self-insured (also referred to as self-funded). Or a fully-insured group insurance plan.
In order to make an educated decision that fits you and your employees needs, you must understand what they both are, what makes them different, any benefits or downfalls, and any other important factors that could influence your decision.
Defining Self-Insured and Fully-Insured
Before we dig into the major differences, pros and cons of each and other influential factors, you need to understand what these two plan types are.
Self-Insured Group Insurance
A self-insured or self-funded group insurance plan is a coverage where you, the employer, will assume the financial risk for providing healthcare benefits to your employees. In simpler terms, with a self-insured plan, rather than paying a fixed premium to an insurance provider, you will pay for each claim as they arise out of pocket. Most of the time, employers who offer a self-insured plan will set up a trust fund that holds money designated specifically for incurred claims. Another common practice of business owners with self-insured health plans is to purchase stop-loss insurance. Which can protect the company if the insurance claims go over a certain threshold.
Fully-Insured Group Insurance
On the other hand, fully-insured group health insurance is the more common and traditional type of employee coverage. With these types of plans, an employer will work with an insurance provider, and pay predetermined premiums for their company’s health insurance package based on the number of enrolled employees. Unlike self-insured insurance plans, with fully-insured, the insurance company holds all of the financial risk that comes with medical expenses, and administrative costs. In other words, in the case that an employee gets injured, the insurer is responsible for paying the bills and not the employer. Additionally, fully-insured health plans are subject to state regulations, while self-insured plans are not.
Core Differences Between Self-Insured and Fully-Insured Plans
As previously touched on, the biggest and most impactful difference between the two plan types comes down to the financial responsibility. While self-funded plans require an employer to fund any employee medical expenses, fully-insured plans put the financial responsibility on the insurance company. While there is more risk for the business owner with a self-insured plan, there are various potential benefits that we will get to a bit later.
With self-insured plans, you’ll have far more flexibility in the way that you choose to customize your employees health coverage. Since you are incurring the cost, you’ll have the ability to pick specific benefits that fit your employees needs, depending on the demographic of your workers. On the flip side, fully-insured group insurance plans normally come with a standard benefit package that is put together by the insurance company.
If opted into a fully-insured insurance plan, your company’s coverage will have to adhere to state regulations and to any Affordable Care Act (ACA) measures. A fully-insured plan will be regulated through the federal Employee Retirement Income Security Act (ERISA), and often allows you to bypass several state regulations.
If you decide to offer a fully-insured health plan, the amount of money that you pay on a monthly and yearly basis will be very predictable since the premiums are predetermined by the insurance carrier. The downside is, that even if your employees never get injured, your premiums will still remain the same. Conversely, when offering a self-insured plan, you as the employer have the potential to save money if employee claims are lower than you expected them to be. But don’t get too excited as this is a double-edged sword, since you could have to pay more money than you expected if there are a high number of claims.
Factors to Consider When Choosing Your Plan
Now with the main differences, benefits and downfalls of self-insured group health plans and fully-insured group health plans in mind, it’s time to make a decision. Since this choice will have a major impact on your company and employees, it’s important to take your time and look at various considerations. To help you speed up this process, we’ve compiled some of the key factors that business owners should keep in mind during their decision making journey.
Employee Needs, Wants, and Demographics
To effectively choose the best plan, you must not only look at your own preferences, but you must also look at your employee’s needs, wants and demographics. Having a thorough understanding of your workforce is necessary in this decision. If you have a workforce made up of a diverse group of individuals, self-insured plans are the way to go. With self-insured plans you’ll be able take care of everyone’s unique needs, since you have the ability to customize your benefits packages. When assessing your workforce, pay attention to factors that could make someone higher risk such as their age, pre-existing health conditions, family sizes, and lifestyle choices.
Financial Situation and Risk Assessment
Two more important factors in determining the right type of plan for your business is to take into account your company’s financial situation and the amount of risk you’re willing to take. If your employees have a high number of claims, will you be able to afford the potentially higher premiums? Are you confident that your employees are healthy enough to have a minimal number of medical expenses? If your answer to these questions is yes, then a self-insured plan could be a great option for you. If not, the cost predictability that comes with a fully-insured plan will be a safer route for you to take. When assessing your company’s finances, look at your regular statements, monthly revenue stream, and any future assets or losses that you can expect to occur.
Financial Planning and Budgeting
Going back to risk management, when comparing the two plan types, think about the way you budget your money. If you are someone who needs to know ahead of time exactly what your expenses are going to be, a fully-insured plan will provide you with predictability, since there is no risk of your premiums going up or down. Having a fixed group insurance cost, can give you more stability when making a financial plan for the future. On the other hand if you are confident in your budgeting tactics no matter how high or low your premiums are going to be, then a self-insured plan will work just as well.
Choosing not to reach out to your employees for their input on the company’s future health plan will only be detrimental to you, as unsatisfied workers will lead to a variety of problems down the road. Instead, try engaging with your workforce in meetings and with surveys to have an idea of the most common preferences. You can even bring in an insurance expert to hold a seminar where they can go into detail about each plan type and answer commonly asked questions. By effectively understanding their needs, wants, and pain points, employees will be happy knowing that they’re included in the decision-making process, and you’ll be able to choose a plan that fits the majority of their preferences.
Analysis of Regulations
With both fully-insured and self-insured group health coverages, there will be certain regulations that you’ll need to abide by. As mentioned, with fully-insured plans you have to comply with state insurance and ACA mandates. With self-insured plans, you need to comply with federal ERISA regulations. To have a firm understanding of the most up-to-date regulations and standards, it will benefit you to do your own research and speak with legal counsel, an insurance expert or both. These individuals specialize in understanding these regulating bodies and can help you comprehend the often-confusing rules.
One factor that employers oftentimes overlook is the administrative responsibilities that come with providing a self-insured health plan. While you have more ability to customize benefits, it will be up to you to handle claims processes, regulatory statutes, and support your employees when they’re in need of help. If you have a team of administrative professionals who you are confident in, then there’s no need to worry. If you don’t though, the help of an insurance company that comes with a fully-insured plan will be your best choice.
Bringing it All Together
Choosing a quality group health insurance plan is a big decision that can affect the well-being of your employees and your company’s financial status. When reviewing your options, keep in mind health insurance is more than an expense. Instead look at it like an investment for the future satisfaction and productivity of your workforce. When looking at the differences between a self-insured and a fully-insured plan, take into account your budget, financial situation, employee demographics, regulatory requirements and commitment to administrative tasks. It’s crucial that you find the proper balance between a cost-effective plan and plan that offers comprehensive coverage. By taking your time in this analysis and weighing out the pros and cons of each option, you will be able to make an informed decision that makes everyone happy.
If you are a business owner who’s in search of a group health insurance plan with great employee benefits, for a low price. GHQ is your one-stop-shop. In a matter of minutes, you can get competitive quotes for free, and speak with a licensed insurance professional. Our mission is to make the shopping process quick and easy, while also guaranteeing to show you only the top plans in your area. And our side-by-side comparison tool ensures that you’ll find the best package that fits your business’s budget and needs. If you are interested in getting your free quote today, or simply want to learn more, fill out a form or give us a call at 888-571-0251.