A fully insured health insurance plan is what people may think of when they hear the word "insurance." The employer pays premiums to an insurance company that, in turn, assumes the risk of paying medical claims generated by workers. This type of health plan is in contrast to "self-insured" plans, in which the employer pays for its employees' health claims itself. The firm may still pay an insurance company or other firm to serve as administrator for the plan, and it may have "catastrophic" insurance that kicks in if claims reach a certain amount. Companies have much to consider when determining whether to pay for a fully insured plan or choose another option.
Benefits
Companies using a fully insured plan have the advantage of a known expenditure every month--the premium amount, as opposed to those using self-funded plans where costs can fluctuate wildly depending on claims. This makes it easier for a firm to plan ahead financially. Additionally, such a plan requires less effort and knowledge on the part of the firm as to assessing risk and setting costs for the pool of employees.
Warnings
Being fully insured has certain disadvantages. For starters, the price you pay for it will be higher, in theory, than costs of the premiums you pay and the administration of the claims your employees rack up, according to actuary and consultant Karen Bender. That is because you must subsidize the insurance company's overhead and profits. Additionally, in this type of program, the insurance company, not you, sets premiums and determines what benefits can be offered.
Considerations
Fully insured plans suit some employers better than others. Among those that do well with such plans, according to Bender, are those that cannot tolerate large fluctuations in claims, such as those without much capital or those that cannot readily assess members for risk; those with higher-than-average morbidity and those that lack the administrative or legal resources to handle being self-insured.
Statistics
In 2008 in the United States, 45 percent of workers who had medical insurance were covered by a fully insured plan, according to the Employee Benefits Research Institute. The remainder were in self-insured programs. Small firms leaned heavily toward being fully insured. About 88 percent of employees working for firms with between 3 and 199 employees were enrolled in fully insured plans.
Expert Insight
John Foley, who runs a small-business health insurance consulting firm called Benefit Consulting Group, says small companies do not necessarily need to be fully insured, despite the common perception. In fact, he says any company with more than 25 employees "should seriously review the merits of being partially self-insured." Since you only pay for the health care that is used, and are not paying insurance for times when no one is sick, your company stands to save 30 percent compared to a fully insured plan, he says. If claims spike unexpectedly, though, you could end up spending more this way than you would have if fully insured.
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