Fully Insured vs. Level-Funded Self-Insured Medical Plans: What's the Difference?

Fully insured and level-funded self-insured medical plans are two of the most common types of employer-sponsored health insurance plans in the United States. While both types of plans offer employers and their employees access to health insurance, there are some key differences between the two.

What is a Fully Insured Medical Plan?

In a fully insured medical plan, the employer purchases health insurance coverage from an insurance company. The insurance company is responsible for paying all medical claims, up to a certain limit. The employer pays a fixed premium to the insurance company each month, regardless of how much medical care their employees use.

What is a Level-Funded Self-Insured Medical Plan?

In a level-funded self-insured medical plan, the employer acts as the insurer. The employer funds a claims account to pay for medical claims. The employer may also purchase stop-loss insurance to protect itself from catastrophic claims. The employer pays a fixed premium to a third-party administrator (TPA) to manage the claims process.

Critical Differences for Employers

Here are some of the key differences between fully insured and level-funded self-insured medical plans for employers:

• Cost: Level-funded self-insured plans can be more cost-effective for employers with healthy employee populations. However, there is more risk involved, as the employer is responsible for paying all claims up to the stop-loss limit.
• Flexibility: Level-funded self-insured plans offer employers more flexibility in designing their health insurance plan. Employers can choose the benefits they want to offer and the level of coverage they want to provide.
• Administrative burden: Fully insured plans typically have lower administrative burdens for employers, as the insurance company is responsible for managing the claims process. Level-funded self-insured plans require employers to work with a TPA to manage claims.

Critical Differences for Employees

Here are some of the key differences between fully insured and level-funded self-insured medical plans for employees:

• Cost: Employees' out-of-pocket costs may vary depending on the type of plan their employer offers. Some employers with level-funded self-insured plans may be able to offer lower deductibles and copays than employers with fully insured plans.
• Choice of providers: Employers with level-funded self-insured plans may have more flexibility in choosing which healthcare providers to include in their network. This can give employees more choices for where to receive care.
• Customer service: Employees may have more direct access to customer service representatives in a fully insured plan. In a level-funded self-insured plan, employees may need to go through their employer to resolve any issues with their coverage.

Critical Differences for Insurance Companies

Here are some of the key differences between fully insured and level-funded self-insured medical plans for insurance companies:

• Risk: Insurance companies assume less risk in a fully insured plan than in a level-funded self-insured plan. In a fully insured plan, the insurance company is responsible for paying all claims, up to a certain limit. In a level-funded self-insured plan, the employer is responsible for paying all claims up to the stop-loss limit.
• Profitability: Insurance companies can be more profitable with level-funded self-insured plans than with fully insured plans. This is because level-funded plans typically have lower administrative costs and higher stop-loss insurance premiums.
• Customer satisfaction: Insurance companies may have higher customer satisfaction rates in a fully insured plan than in a level-funded self-insured plan. This is because employees in fully insured plans typically have more direct access to customer service representatives.

Which Type of Plan is Right for You?

The best type of medical plan for your company will depend on a number of factors, including the size and health of your employee population, your budget, and your risk tolerance. If you are considering a level-funded self-insured plan, it is important to work with a qualified broker or advisor to make sure that it is the right choice for your company.

Conclusion

Both fully insured and level-funded self-insured medical plans have their own advantages and disadvantages. It is important to weigh the pros and cons of each type of plan before making a decision. If you are not sure which type of plan is right for your company, you should work with a qualified broker or advisor.