Self-Insured vs. Fully Insured

September 1, 2009
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August CoverEmployers with self-insured employee health programs pay for medical claims and fees out of current revenue—in effect, acting as their own insurers. It’s the alternative to a fully insured plan, where employers pay a fixed premium to a third-party commercial insurance carrier that covers the medical claims.

Although self-funding won’t work for every company, it’s wise to periodically review potential financial advantages, says Dean Hatfield, senior vice president and health practice leader in the New York office of Sibson Consulting.

The general underwriting rule is that it becomes an advantage to self-fund if an employer has 1,000 employees or more. In general, when the move is made, about 2 percent to 3.5 percent of insured plan costs can be eliminated overnight, he estimates.

Under self-insured plans, employers also eliminate state premium, broker and insurance commission taxes, and they can avoid compliance with state-mandated benefits regulations and federal Employee Retirement Income Security Act (ERISA) regulations. Often, too, employers gain more control and freedom over plan design.

"While fully insured plans offer predictability and safety—albeit at a cost—as the size of an organization increases," Hatfield says, "the benefits of self-funded plans become increasingly difficult to ignore, especially in turbulent times."

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