Rent or Own? The Pros and Cons of Fully Insured versus Self-Funded Health Insurance

​Approximately 157 million people in the US take advantage of employer-sponsored health insurance. Companies understand that offering this benefit is crucial in their efforts to attract and retain employees. While this perk is highly valuable to workers, the rising cost of insurance is becoming problematic.
 
Over the past 20 years, employee contributions for health insurance coverage has grown faster than gross annual pay. These increases in deductibles, co-pays and co-insurance have all had a negative impact on employees paychecks.
 
Fully-insured carriers are exacerbating the problem. These companies have gamed the insurance ecosystem so that they are  guaranteed a 15% profit every year. With additional pharmacy rebates and other arrangements, their profits continue to grow at the expense of the employers and employees they serve.
 
Employers, of course, are not blind to this reality and understand they need to offer a more stable plan. Towards this goal, more and more companies are looking to switch from their full-insured carriers to a self-funded option.
 
Self-funding is a way for employers to take ownership of their plan design and pharmacy rebates. While fully-insured carriers can change deductibles, co-pay and co-insurance at their discretion, self-funded plans allow the employers to determine the amount of their employees deductibles, co-pay and co-insurance.  Employers gain control.
 
Today, 23% of small employers (those with up to 199 employees) use self-funding, and that percentage continues to grow. While premiums for small and large employers are not dissimilar, smaller employers tend to pay more of the premiums in an effort to increase participation among their staff.
 
Group captives, a form of self-funding, is another good option. Group captives allow for the pooling of large claims to leverage the law of large number for small employers. Self-funding principles are based on paying known claims and buying insurance for unpredictable, larger claims.
 
Wellness programs, such as health risk assessments and biometric screenings, are also becoming more popular with employers. While these programs have no real impact on insurance costs, they go a long way in building strong employer-employee relationships and have value in attracting and retaining staff members.
 
In conclusion, fully-insured carriers offer a variety of benefits to employers and their employees, but their cost structurers are becoming untenable for both. As a result, self-funded options are becoming more attractive for those employers who are trying to control costs and help their employees keep a little more in their paychecks each week.
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater