When traditional fully insured health plans make sense for employers
With its promise of predictability, a fully insured plan may be the best route for some employers.
Many employers, especially those who are smaller with around 100 or fewer employees, choose fully insured plans because their costs can remain steady month-over-month.
With a fully insured health plan, the employer pays a fixed premium set by the health insurance carrier for employee coverage. When employees use their benefits and have health care claims, the carrier then pays for them — rather than the employer.
In other words, the fiscal responsibility and risk is on the carrier. The carrier is also managing a lot of the administrative burden and compliance requirements.
However, since the carrier is shouldering the risk, fully insured plans can be more expensive for employers than other options. For instance, over the course of a year, employers' monthly premium payments may total more than their employee claims.
So, what differentiates fully insured vs. self-funded or even level funded plans? When employers choose the self-funded option, they’re taking on the risk of paying the health claims of their own employees as they occur whereas a level-funded option is the middle ground, in which the employer and insurer share the risk.
There are a number of factors that must be taken into consideration when making a decision on funding structure, including cost, coverage and flexibility. However, there are several key advantages that a traditional, fully insured health plan can offer employers.
A fully insured plan may be a good choice if employers don’t have the staff, resources or expertise to manage health care benefits on their own. For employers who have high employee claims and prefer a certain level of certainty on their balance sheets and want to mitigate their risk, a fully insured health plan may be the way to go.
Fully insured plans work well if employers need a high degree of support
Many employers want to offer their employees quality health benefits, but they don’t have the time or personnel to manage the process themselves. This is especially the case for small businesses, who are busy managing the day-to-day operations — including keeping track of cash flow, hiring and training employees, marketing their business and more. They may not have the time to work with a broker or carrier on customizing a health plan, let alone administer it effectively.
With a fully insured health plan, employers can outsource the responsibility of meeting federal and state legal requirements to the insurance carrier. This helps employers avoid the burden of ensuring compliance with various laws and regulations.
With a fully insured plan, employers can typically choose from a variety of off-the-shelf benefits packages, offer it to their employees and hand off the administrative burden, compliance requirements and claims’ payments to the carrier.
Fully insured plans work well if employee claims are unpredictable
Sometimes, the employer’s workforce can dictate what type of funding is best. There can be a wide cost differential for an employee population that is relatively healthy versus one that is marked by a number of serious health issues.
Take cancer: The average cost of treatment and drugs following a cancer diagnosis is $42,000, according to the National Cancer Institute,1 and cancer diagnoses are becoming more and more frequent. In fact, a recent report found that 13% of employers said they had seen more late-stage cancers in 2022 than they had in 2021, and another 44% anticipate seeing an increase in the future.2
That means if an employer’s workforce has a number of employees with cancer diagnoses or even pregnancies, which can also drive up claims, a fully insured plan with a fixed premium each month may offer a sense of security.
Fully insured plans work well if employers favor routine over risk
With a fully insured plan, the employer and carrier negotiate on a set monthly premium, which is based off the employer’s unique workforce and the insurer’s fees, at the beginning of the plan year. That premium then remains constant through the duration of the year, which means employers know what to expect — at least as far as their health care costs go — as they budget.
For employers with a limited appetite for risk, a traditional, fully insured plan may be the best way forward. But, it’s important to note that this is especially true for small employers. Larger employers tend to have a wider employee base where the risk of high and costly claims can be spread among the workforce, whereas smaller employers don’t.
Overall, a fully insured health plan can be a cost-effective and predictable option for employers seeking to provide quality health care coverage to their employees — even if it means limiting their control over customizations to the plan and provider networks.
Any questions related to self-funded vs. fully insured or level funded? Reach out to your broker, consultant or UnitedHealthcare representative.