Fully-insured versus self-insured? A growing company may debate the merits of both funding options, trying to find the one that best suits their needs. But are these really the only options?

Let’s take a quick look at the differences.

A fully-insured plan offers protection from large claims through carrier pooling. Other groups in the pool insulate employers from large, catastrophic claims, such as premature birth or cancer treatment.

However, where a fully-insured plan falls down is with small claims: Employers are essentially financing claims over time by paying premiums. Because taxes and carrier profits come along with this financing, employers are paying a hefty fee.

On the other hand, paying small claims as they come in on a self-insured plan can save employers thousands of dollars, compared to a fully-insured plan. But when an employer is hit with a large claim, they must be prepared to cover the high cost.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

To mitigate these large claims, self-insured employers also buy stop-loss insurance so they’re protected by claims over a certain dollar amount or percentage. However, stop-loss rate increases can be somewhat unpredictable — an employer with high exposure, poor claims history and no rate cap could see a 50% rate increase the year following a significant claim.

In addition to steep rate increases, some stop-loss carriers laser individuals with large, ongoing claims. For example, an individual member on the plan who gets dialysis treatments, which could range in the tens to hundreds of thousands of dollars per year, may get lasered in the second plan year, which means the individual isn’t covered by stop-loss insurance and it’s up to the employer to pay the full claim.

But there’s a different kind of plan that could solve problems for both fully-insured plans — which are better for large claims — and self-insured plans — which are better for small claims. It’s called a national plan.

In a national plan, employers are pooled together to purchase stop-loss insurance. Just as with a self-insured plan, employers pay smaller day-to-day claims as they come. But they enjoy greater protection against catastrophic claims typically covered by stop-loss insurance, as well as the purchasing power of a large group.

Here’s how it works: Employers are pooled together as one large plan to purchase stop-loss insurance. To the carrier, you appear as one group with enough clout to bypass lasers and enough members to avoid steep annual rate increases.

When renewals roll around, each employer is assessed based on the claims associated with their particular group, as well as any cost containment or reduction measures that have been put into place.

With a national plan, cost containment through disease management plans becomes easier than if an employer is fully-insured. This is partly because employers in national plans have access to data, which provides insights into the types of claims that are being paid — a way forward for disease management and health improvements.

A national plan isn’t right for every employer. In fact, those currently dealing with a high ongoing claim may be prohibited from joining until the claim stops. However, an employer who is hit with a high, ongoing claim once on a national plan is protected and won’t be lasered or penalized for it.

There’s more good news. In one large national plan with 125,000 members and 540 companies, the renewal rate increases are less than 4% — about half of typical renewals.

National plans are yet another way for employers to contain costs while having visibility into claims data. While it may not be right for employers currently experiencing large ongoing claims, it’s a good choice for mid-size employers who are frustrated with the inefficiencies of the fully insured and self-insured options and have a desire to work on cost containment.

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