Fully-Funded Health Insurance
Companies that choose the fully-funded option are typically smaller (less than 1000 employees).
With a fully-funded (fully-insured) health plan, employers pay a monthly premium per employee to a health insurance company.
The monthly premium is usually only fixed for one year, after which the rate typically increases due to rising healthcare cost trend. Employees are responsible for paying for copays, coinsurance, and towards their deductible. The insurance company pays for the remaining costs.
Self-Funded Health Insurance
Companies that choose the self-funded option are typically larger (more than 1000 employees).
With a self-funded (self-insured) health plan, employers operate their own health plan. Employers have full control over the plan’s benefit design, which allows them to tailor the plan to the specific health needs of their employees.
Employers only pay a small monthly premium per employee to an insurance company, which covers administrative services for the health plan. Employees are responsible for paying for copays, coinsurance, and towards their deductible. Employers pay for the remaining costs.
Typically, choosing this option allows employers to save money. This is because insurance companies add on extra margins for profit to the monthly premium of fully-funded plans. However, self-funding can be a riskier option than fully-funding. If a handful of employees experience catastrophic healthcare emergencies, actual costs could easily exceed expected costs. This is where self-funded employers can purchase stop-loss insurance for a specified monthly premium. Stop-loss insurance involves a specified limit on healthcare costs. If an employer incurs higher costs than the limit, then the employer is reimbursed for the amount over the limit.