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Fully Insured vs. Self-Funded

In a traditional fully insured health plan, your company pays a premium. The premium rates are fixed for a year, and you pay a monthly premium based on the number of employees enrolled in the plan. Your monthly premium only changes during the year if the number of enrolled employees in the plan changes. The insurer collects the premiums and pays the health care claims based on the benefits in the policy you purchased. The covered persons are responsible to pay any deductible amounts or co-payments required for covered services under the policy.

The cost of a self-funded plan has fixed components similar to an insurance premium, e.g., administration fees, stop-loss premium, and variable costs (the claims expense). The administrative fees, stop-loss premiums, and any other set fees charged per employee are referred to as fixed costs and are billed monthly based on plan enrollment just like an insurance premium. The employer sponsoring a self-funded plan also pays the claims costs incurred by the covered persons enrolled in the plan, and this cost varies from month to month based on health care use by the covered persons. Stop-loss insurance reimbursements are made if the claims costs exceed the catastrophic claims levels in the policy. So the total cost of a self-funded plan is the fixed costs plus the claims expense less any stop-loss reimbursements.

Limit your Exposure With Stop Loss Protection

Even though these plans are called self-funded plans, an employer typically does not assume 100% of the risk for catastrophic claims. Rather, the employer buys a form of insurance known as stop-loss or excess-loss insurance to reimburse the employer for claims that exceed a predetermined level. This coverage can be purchased to cover catastrophic claims on one covered person (specific coverage) or to cover claims that significantly exceed the expected level for the group of covered persons (aggregate coverage).

With a partially self-funded plan, you pay the claims as they are incurred. Stop loss protection is purchased to limit your financial exposure and protects you by paying when any one individual or the entire group exceeds a predetermined amount.

-Specific Stop Loss limits the claims exposure, per person, up to a level you choose. Claims exceeding this level are covered at 100% by the stop loss coverage.

-Aggregate Stop Loss limits the claims exposure for your entire group. If total claims paid by your group reach this level, the stop loss coverage assumes 100% of eligible expenses for the remainder of the plan year. This Aggregate Stop Loss limit is pre-determined by an underwriter and is based on your choice of specific stop loss level and plan benefit design.

We can help! We can help you and your company decide on health plans which can avoid the tax, all while keeping the level of quality in your overall employee benefit plans. If you are interested in hearing more about your options, or have questions relating to other insurance or employee benefits, please feel free to reach out to the professionals at Associated Financial Consultants, an Associated Group company at 954-983-5600.