30 Oct Fully-Insured vs. Self-Insured Health Plans
In my article entitled “Health Plan Costs and Savings,” we defined some basic elements of health plans. I also briefly introduced two different plans: fully-insured plans and self-insured plans. Let’s go into a little more detail about fully-insured vs. self-insured health plans.
Fully-Insured Plans – Fully-insured plans have dominated the small group health insurance market for years. Being able to offer affordable health insurance is extremely important for business owners, and fully-insured plans have, until recently, offered “the simplest and the cheapest” solution. It’s still the simplest, but now it is often not the cheapest. Let’s examine it more closely.
Bundled Approach – Fully-insured plans combine plan elements with one carrier and offer one approach to a business owner. Administration, network utilization, PBM services, claims management, underwriting, reinsurance, and compliance are all offered by the same company. Several plan designs may be offered (different deductibles, copays, etc.), but all plan elements are bundled under that one company.
Underwriting – Fully-insured health plans changed drastically with the advent of the Affordable Care Act (ACA), due in large part to mandatory changes in the way plans are underwritten. Pre-existing conditions were eliminated. Additional mandatory provisions have to be included in all plans, such as mandatory coverage for pregnancy regardless of the stage. Underwriting for age and tobacco status continues to be allowed when pricing a fully-insured health plan, but not health conditions. Premiums have increased dramatically as a result of these changes.
Self-Insured Plans – Being able to offer quality affordable health insurance to employees continues to be necessary to business owners, but it has become increasingly difficult. Some companies are finding that self-funding can be the answer to the problem of ever-increasing premiums.
Unbundled Approach – Self-funded plans can unbundle the health plan elements and can offer each independently. Each plan element can be evaluated for efficiency and transparency on its own. For example, a PBM independent from the plan administrator is usually more willing to be transparent with its contract and formulary than one that the administrator owns.
Underwriting – As with the fully-insured plans, underwriting changed with the ACA, just not as much. Pre-existing conditions were eliminated in both plans, and conditions, such as pregnancies, must be covered by both. One significant difference, however, is that with self-insured plans, health questions are allowed. Underwriting can be more accurate when setting premiums because more information is available.
Availability and Appropriateness of Self-Insuring – Many states require that a company have a minimum number of employees to be eligible to self-insure. But even if available, it may not be appropriate for a company to self-insure due to underwriting considerations or simply a low tolerance for risk.
This is discussed more in detail in my article about Self-Insured Plans, along with an explanation of Level Premium Plans specifically designed to meet smaller companies’ needs.