Self-Funded vs. Level-Funded vs. Fully-Insured Health Plans: What You Don’t Know Could Cost You
The NBC hit comedy “The Office” once portrayed the experience of adopting a new healthcare insurance plan. This is for a whole office of people with varying health needs and concerns. The push and pull of getting health plans that covered everyone’s ailments. While at the same time looking for something that wasn’t too costly was the premise of the whole episode. It made a lot of sense that the clashes between these two interests could make for some great comedy. However, the real-world experience of setting up a new health plan is often stressful and very serious. It’s important to go into the process of the different types of health plans.
Fully-Insured Health Plans
The picture that comes to mind when the average person thinks about health plans are fully insured plans. Under this type of plan, the employer pays the premiums to an insurance carrier for their pool of employees. In return, the insurance carrier provides coverage for medical expenses that fall under the umbrella of what the particular plan covers. Typically, there are various tiers of health plans offered. This is to give employees options for the type of coverage that is best suited to their needs.
Employees covered by this type of insurance should read their policies carefully to understand what is and is not covered. Most health plans do not cover elective or cosmetic procedures for example. Those fall outside the realm of what the insurance company wants to fork over funds for. If one wishes to have such procedures covered they would either need to pay for them out-of-pocket or find a supplemental insurance program that covers those.
Health plans are typically of the co-insurance nature. This means that the employee pays all the costs until they have hit their deductible. This is the amount at which the insurance kicks in and begins to cover additional expenses. A typical deductible might be $5,000. This means that in a given year the employee would pay for the first $5,000 of his or her medical care completely. Amounts above $5,000 would then be 80% covered by the insurance plan. This is a fairly typical scenario but does not necessarily apply to everyone. It is important to read the details of any given plan very carefully before assuming that is how it works.
Health care costs continue to soar across the country as more people find themselves sick or unable to work. It is not surprising then to see that many businesses are eager to find ways to lower the cost of the health insurance they provide to their employees. One of the ways to do this in certain circumstances is to go with a self-funded insurance plan. Aetna, the giant healthcare insurance company, provides a brief explanation of what a self-funded plan is:
There isn’t a one-size-fits-all approach to lowering health care costs, but self-insurance, or self-funded insurance, may be an important consideration for your overall strategy. More and more companies of all sizes are choosing to partner with their insurance companies and set aside funds to pay for the health care needs of just their own employees.
Self-funded plans may be more flexible than traditional, fully-insured plans. They’re subject to less regulation and offer business the opportunity to customize their health care plan to meet their unique business needs. And because companies are paying only for the health care costs of their own employees, there may be money left over at the end of the year that can go toward other business needs.
This is an option that ought to at least be considered for companies that believe that they can work with their employees on ways to be healthier. This is all the rage lately as preventative measures to keep people out of doctor’s offices and hospitals are a lot more affordable than paying for their expenses once they are in those medical facilities. Thus, a self-funded plan could work to cover the costs specifically of one’s own employees.
Before getting too excited about self-funding plans though, please understand that this plan is best suited for large companies. Those are the only ones that tend to have the financial backing to be able to afford to make these self-funded options. They simply are not the right fit for every company.
Pools of employees are enormously helpful when it comes to healthcare costs. With enough people paying in money to a plan, it is easy to compensate for one or two people having massive medical invoices coming down the pike. Those costs are absorbed by the larger pool of employees without a shocking price tag increase on premiums in the following year. However, what happens when a company has a smaller pool of employees to work with?
Medium-sized businesses with roughly fifty employees can find value in using level-funding plans. This type of plan sets aside some monthly premium for what is known as “stop-loss prevention”. This is used to protect against those one-time oversized invoices that could happen even in a small group. It is practically impossible for a fifty-person company to compensate for a big cost like that. Level-funding plans are a way to shift a lot more of the responsibility onto the insurance companies instead.
Planning for the Future
All healthcare plans have upsides and downsides. There is no one-size-fits-all option that works for every company and situation. The reality of the situation is that these types of things require careful examination. Employee input should be sought out, but it should not be the only factor under consideration. The reality is that each employee will have his or her own self-interest at heart first and foremost. The company has to think about what is best for a larger pool of people.
The best thing that any company can do is work with their employees to attempt to trim down the overall healthcare costs in general. They should put up incentives for employees to exercise more often and to try to drink more water and get good sleep. That along with allowing them to take regularly scheduled personal time off (PTO) are all good ideas for managing stress and creating a good work-life balance. That may help avoid those large medical expenses in the first place.
Health plans should be reviewed on a regular basis. This is to ensure that they are continuing to work well for an organization. Things change over time and it is possible that the plan may have to change along with that. Keep a close eye on the cost of healthcare overall. And see which health plans may be best suited for your particular situation.