From Fully-Insured to Self-funded Insurance Plans And the In-Between
10 Minutes
Team Curative
Mar 28, 2024
When considering health insurance options for employees, employers often have to choose between self-funded plans and fully insured plans, each with its own set of advantages and disadvantages. Moreover, making the switch from one to the other can be tricky.
Understanding the key differences and trade-offs can help employers make an informed decision that aligns with their budget, administrative capabilities, and the healthcare needs of their workforce. Smart health insurance for companies and options exist, and it puts employees’ wellness first while taking a lot of the strain off of employers.
Self-funded plans: cost savings in question
Let’s start by defining what self-funded means. With a self-funded plan, an employer collects premiums from their talent and is responsible for paying medical claims. They may use a third-party insurance company to help administrate the plan.
It’s not uncommon for large companies to self-fund their employees’ healthcare. In 2022, 65% of US workers were covered under an employer’s self-funded plan. On the surface, this type of model carries some benefits – cost savings, flexibility, and tax breaks.
Pros:
Cost Savings: Self-funded plans can often be more cost-effective for employers compared to fully insured plans. Employers have more control over their healthcare spending and can potentially save money on premiums and administrative expenses.
Flexibility: Self-funded plans offer employers the flexibility to design their own healthcare benefits and customize them to meet the specific needs of their employees. This includes selecting the coverage options, network providers, and plan features.
Less Regulation: Employers who opt for self-funded plans are exempt from some state regulations that govern fully insured plans. This allows employers more freedom in selecting the benefits they provide to their employees.
The truth is, self-funded health insurance for companies can have some obvious downsides - and both the employer and employee may suffer.
Cons:
Financial Risk: With self-funded plans, employers assume more financial risk for their employees' healthcare costs. If there are unexpectedly high claims or catastrophic events, the employer may be responsible for covering those costs. This can be mitigated by purchasing stop-loss insurance to limit the potential financial exposure.
Administrative Burden: Self-funded plans require more administrative resources and expertise compared to fully insured plans. Employers must handle claims processing, provider contracts, compliance with regulations, and other administrative tasks associated with managing the plan.
Limited Access to Networks: Self-funded plans may have more limited access to provider networks compared to fully insured plans. This can be a disadvantage for employees who prefer a wider choice of healthcare providers or specialized services.
And even some of the supposed cost savings aren’t really there. A study published last year by the Health Care Cost Institute found that many common procedures and services were more expensive under self-funded plans than under fully insured plans.
They include:
Endoscopies (8% higher)
Colonoscopies (7% higher)
Lab tests (5% higher)
Moderate-severity emergency department visits (4% higher)
When these higher prices become a problem, the employer has less negotiating power and may find it hard to get better rates for their talent. If they rely on a third-party administrator to negotiate with providers, these representatives are not incentivized to get lower prices, as they bear none of the risks.
Employers may also shoulder financial burden if an employee suffers a serious health issue. When this happens, a self-funded business may not have the protection that comes with a fully-insured plan. Plus, economic fluctuations and changes in the healthcare and insurance industries can cause a sudden increase in the price and the availability of services. This can make it hard for an employer to conduct long-term financial planning.
It's important for employers to carefully weigh these pros and cons before deciding to implement a self-funded plan, taking into consideration their financial capabilities, risk tolerance, and administrative capabilities.
Fully-insured
On the other side of the spectrum, you have fully insured health insurance for companies that want a designed plan to offer as an employee benefit. Unlike self-funded situations, under fully insured plans, employees pay a set premium directly to an insurance company. These fully-insured plans have worked in the past, but with the growing cost of premiums, they present many challenges to businesses and the insured. Here are the pros and cons of fully-insured plans:
Pros:
Predictable Costs: With fully-insured plans, employers pay fixed premiums to the insurance company, allowing for predictability in healthcare costs. This can be advantageous for budgeting purposes, as the employer knows exactly what their healthcare expenses will be.
Simplicity and Reduced Administrative Burden: Fully-insured plans typically involve less administrative work for employers. The insurance company is responsible for tasks such as claims processing, provider contracts, and regulatory compliance, relieving the employer of these responsibilities.
Access to Wide Provider Networks: Fully-insured plans often provide access to large networks of healthcare providers. This allows employees a broader choice of doctors and specialists, increasing convenience and flexibility in seeking medical care.
Cons:
Higher Costs: Fully-insured plans tend to have higher premiums compared to self-funded plans. Employers may pay more for insurance coverage, as the insurance company assumes the financial risk for healthcare claims and builds it into the premiums charged to the employer.
Limited Customization: Employers have less flexibility to customize the plan benefits and features to their specific needs. Fully-insured plans are usually standardized and offer pre-determined coverage options, limiting the ability to tailor the plan to the unique requirements of the workforce.
Lack of Transparency: With fully-insured plans, employers may have limited transparency regarding how the premiums are calculated or what portion goes towards claims, administrative costs, or profit for the insurance company. This lack of transparency can make it challenging for employers to evaluate the cost-effectiveness of the plan.
Level-funded: An in-between option
Level-funded plans function as a hybrid solution of fully-insured and self-funded plans, allowing employers to keep some of the predictability fully-insured plans. Here are some of the pros and cons of level-funded plans:
Pros:
Cost Control and Savings: Level-funded plans offer cost control and potential savings compared to fully-insured plans. Employers have more visibility into their healthcare spending, as the fixed monthly payment accounts for expected claims, administrative costs, and stop-loss coverage. If claims are lower than expected, employers may receive a refund or credit, leading to potential cost savings.
Flexibility and Customization: Level-funded plans offer flexibility for employers to customize plan design, such as deductibles, copayments, and networks, to suit their employees' needs. This enables a tailored approach to healthcare benefits and can lead to improved employee satisfaction and engagement.
Access to Claims Data: Employers have access to detailed claims data and utilization reports with level-funded plans. This information provides insights into employee health patterns, allowing for proactive measures to promote wellness and cost-effective plan management.
Cons:
Financial Risk: Level-funded plans expose employers to the risk of high-cost claims. While stop-loss insurance provides protection against catastrophic claims, employers may bear the financial burden if claims exceed the expected amount. This risk can be mitigated by appropriate risk assessment and selecting appropriate stop-loss coverage.
Administrative Responsibilities: Compared to fully-insured plans, level-funded plans entail more administrative responsibilities for employers. They must manage claims processing, enrollment, compliance, and other administrative tasks or appoint a third-party administrator (TPA) to handle these functions. This can increase the workload and complexity for employers.
It's essential for employers to carefully evaluate the financial capabilities, risk tolerance, and administrative capacity before opting for a level-funded insurance plan.
While self-funded plans offer certain benefits, such as cost savings and flexibility, it's important to recognize that they come with inherent risks and administrative burdens. Recent studies have highlighted that self-funded plans may not always deliver the cost savings they promise, and employers may face challenges in negotiating better rates for their employees. Moreover, self-funded plans may lack the financial protection and long-term stability that come with fully-insured options. Therefore, employers should carefully evaluate their specific circumstances and consider alternatives like level-funded or fully-insured plans, which can offer predictable costs, reduced administrative burden, and greater transparency. It is crucial for employers to weigh the pros and cons and seek guidance from insurance providers or brokers before deciding to switch from self-funded plans to other alternatives.
Curative: smarter health insurance for companies
At Curative, we believe better health depends on care people can use and afford. That’s why we’ve created a new kind of health insurance for companies that lets employees focus on care instead of cost, with both fully-insured and level-funded options.
We built this plan on four principles.
Affordability: We’ve designed a large group PPO plan that brings copays and deductibles down to zero, including on most prescriptions.
Engagement: With our Baseline Visit and trusted, ongoing support from a Care Navigator, our members are actively engaged in their health from day one.
Simplicity: We provide a simple, modern experience so healthcare is streamlined, integrated, and stress-free.
Broad choice: Members get access to an extensive provider network that includes 998K+ physicians, 6K hospitals, and 52K facilities.
Our Baseline Visit is all about preventive care
To unlock no copays, deductibles, or out-of-pocket expenses, all your talent has to do is complete a Baseline Visit in the first 120 days. We designed this visit to create an individualized preventive care plan and spot potential health issues early on.
It involves an in-person or virtual meeting with a Care Navigator to orient the member to the plan. Then a Clinician will discuss a personal health roadmap. The visit is 100% confidential and has zero impact on premiums.
We designed our Baseline Visit to deliver unparalleled health engagement. It’s already had a positive impact on our members struggling with diabetes.
94% of type 2 diabetes members were identified in the Baseline Visit in the first 120 days.
55% of type 2 diabetes members are in a Curative condition management program.
80% of type 2 diabetes members who are in a condition management program are in more than one.
Our condition management programs empower members to take a proactive approach to becoming their best selves. We offer programs for weight management, diabetes, pre-diabetes, hypertension, mental health, and maternal health.
Medication made easy with the Curative Pharmacy
We designed several pharmacy options so members can optimize the benefits of our plan and save money. When members take advantage of the Curative Pharmacy solution, it leads to a 12% reduction in total plan costs.
Convenience and engagement are also a big part of Curative Pharmacy. Members enjoy:
A personalized welcome packet with adherence aids
Care coordination with prescribers (refills, prior authorizations)
Two-way text messaging
Pharmacist consultations
Follow-ups after starting new medications
Under the Curative plan, your talent will enjoy no copays on preferred drugs after their Baseline Visit not only at the Curative Pharmacy but at selected pharmacies nationwide. They’ll also experience formulary coverage of best-in-class medication and proactive management to the lowest net-cost drug option.
Level up your healthcare offering
Support your talent with a health plan that makes better business sense than self-funded coverage. From day one, our proactive approach to member health engagement drives longer-term medical cost control.
About Curative
At Curative we want employees to love using their healthcare benefits. Our plan delivers better health through affordability, engagement, and simplicity.
No copays. No deductibles. No...really. Curative is changing the way businesses view health insurance.
If your business is ready to make the switch from a self-funded to a fully-insured plan, Curative is the answer. We offer affordable health insurance for companies that want to embrace preventive care and support a culture of well-being.
To see all disclaimers, please view here.
References
Statista. (2023, January 19). U.S. workers covered by self-funded health insurance plans 1999-2022. https://www.statista.com/statistics/985324/self-funded-health-insurance-covered-workers/
Sen, A. P., Chang, J. Y., & Hargraves, J. L. (2023). Health care service price comparison suggests that employers lack leverage to negotiate lower prices. Health Affairs, 42(9), 1241–1249. https://doi.org/10.1377/hlthaff.2023.00257
Section 1: Cost of Health Insurance - 10240 | KFF. (2023, December 8). KFF. https://www.kff.org/report-section/ehbs-2023-section-1-cost-of-health-insurance/#figure11
Lewis, T., Huang J, & Trempe C. (Aug 2020). Reduction in Chronic Disease Risk and Burden in a 70-Individual Cohort Through Modification of Health Behaviors. Cureus. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7515808/
