Employers have a lot to consider when determining what kind of benefits to offer employees. A solid benefits package can attract and retain skilled talent, but with the cost of insurance coverage rising, many businesses are looking for ways to reduce the expenses of benefit packages. There are some state-mandated requirements for health insurance, and an Ohio Employee Benefits package must include health coverage. When it comes to this insurance, a plan can be structured as either self-insured or fully insured.
What Is the Difference Between Self-Insured and Fully Insured Plans?
Even though employees still receive access to affordable healthcare, there are key differences between the options of self-insured vs. fully insured. Here’s a quick overview of each category.
1. Fully Insured Health Plan
With a fully insured plan, the company pays a yearly premium to an insurance carrier. The rates are fixed for a policy period, and the number of employees enrolled in the health plan impacts the cost. If there is an increase or decrease in enrolled members during the year, the premium is adjusted. The company pays the insurance company directly, which then administers payments for healthcare claims that qualify under the coverage benefits.
There could be several policy options for employees or enrollees, such as high deductible plans or HSA plans. Covered persons may be responsible for co-payments or deductible amounts according to the covered services provisions of the policy. These payments are made directly to the healthcare service provider and not the insurance company.
2. Self-Insured Health Plan
Through the self-insured plan, employers take on the responsibility of running their own health insurance plan, sometimes known as a section 105 plan. This is an IRS-regulated health plan that permits tax-free reimbursement for insurance costs and medical expenses. Employers will use this as an alternative to a fully insured plan because of the assumption of lower costs. However, there is the possibility of exposure to even greater risks if more claims are filed throughout the year than initially expected.
In a self-insured structure, the employer calculates the costs of a plan, including administrative fees, stop-loss premiums, and the costs of paying claims. The risk is solely with the employer, who takes on the responsibility of paying for employee medical claims and fees out of business funds. The business acts as the insurer. Though this is a way to reduce premium costs, too many claims can lead to excessive payments and rising costs. Small businesses with few employees tend to benefit from this option.
Which Option Is Best?
Each company needs to weigh out the pros and cons between the two structures according to the size of the business and the resources available to directly handle medical claims. While self-insured plans can help reduce the costs of healthcare spending, the increased level of risks and the complications of claims processing could cause employee benefits to suffer.
About Haughn & Associates
Founded by Michael Haughn in 1986, Haughn & Associates is a full-service, family-owned, independent insurance agency based out of Dublin, Ohio. H&A strives to provide the best possible price and unique insurance solutions across a myriad of industries, including construction, IT, Habitation & Commercial Property, Agriculture, and Engineering. Devoted to providing the best of business insurance, life and disability insurance, personal insurance, employee benefits, and bonds, H&A is proof that success lies in long-standing client relations and satisfaction. To learn more about how H&A can be of service to you, contact us at (877) 802-2278.
