Employers who are looking to set up a health plan for their workers will find that they have two main options to consider when it comes to the structure. Benefits plan funding may be fully insured, or it may be self-insured which is also known as self-funded. Here is a look at both options to help one decide what would be the best option for the company.

The Fully Insured Health Plan

The more traditional option is the fully insured health plan which is meant to meet the following criteria: –

1. A premium is paid annually be the company to the insurance carrier.
2. The policy outlines coverage benefits, and the insurance carrier will collect premiums as well as pay health care claims.
3. Premium rates are fixed per annum.
4. Those who have been covered by the policy are meant to pay any co-payments or deductible amounts as required.

The Self-Funded Health Plan

There are employers who are looking to manage their costs especially when it comes to offering their employees health insurance. For this reason, they may opt to explore a self-funded benefits plan. This plan is typically outlined as follows: –

1. A fully insured plan from one insurance carrier is not purchased. Instead, the company will operate their own health plan. There is one main reason for this, and that is lower cost as one does not need to factor in the profit margin of the insurance company.
2. The company caters to fixed costs including administration fees and other fees that are linked to plan enrolment.
3. The company then takes on responsibility of variable costs which are the health care claims, paid out monthly. For better control, stop loss insurance helps to reimburse the employer when claims go above the agreed level.

The Key Reasons Employers Choose to Self Fund their Health Plans

When creating a defined benefit pension plan, it is important to understand why more employers are seeking this option. There are several reasons that really stand out. The first offers more to their employees, rather than focusing on a one size fits all insurance policy. With this option, employees can get plans that have been customized to meet their specific health care needs.

There is also the ROI that comes with a self-funded health plan. This comes in the form of interest income from the reserves of the health plan. This are funds that would otherwise generate income for an insurance carrier. Retaining the funds also helps with improving overall cash flow as there is no need to make pre-payments for coverage.

Savings from state health insurance premium taxes can also be made, saving the company up to 3 percent of the dollar value for the insurance premium.

Employers are also highly flexible when it comes to choosing the providers to offer the health care of their employees. This way, they can choose providers that are best suited to meet specific ailments or needs of the employees.

Quick Example

A quick benefit plan example will help to clarify why the self-insured option is so favourable.

Fully Insured Costs – $957,307

Partial Self-Insured Projected Cost – $724,157

 The first thing that you will notice is that the projected cost is already less than $200,000 of the actual cost.

Partial Self-Insured Actual Cost – $596,416

Finally, the total cost that was paid was again, less than the projected cost. The savings are massive, in excess of $300,000 and the employees are happier.

There are a significant number of regulations that must be adhered to when it comes to healthcare, especially in the more traditional fully insured health plans. For those companies that are looking to experience defined benefit plan rules that are less complex, the self-funded benefits plan is the clear choice. These also make it easier for employers that are operating in different states to be free of compliance rules that may change from state to state, especially with insurance regulations.

To make it easier to transition into self-funding benefits, one should seek the services of a Payroll Service companies or a Benefits Brokers. These are able to carefully examine all the employees, their individual needs and meet them.