Did you know the cost of individual health insurance coverage has skyrocketed 58% since 2010?
It’s true: According to the Kaiser Family Foundation Employer Health Benefits Survey, individual premiums rose from $5,049 annually in 2010 to nearly $8,000 in 2022. Worse yet, family coverage increased 63% in that same period.
And guess what? Health benefit costs per employee are expected to rise an additional 6.5% in 2023.
So it’s no surprise that businesses are always looking for ways to put a cap on the cost of employee benefits — without putting a cap on health coverage. As an employer, you have two options: self-funding your health plan or taking out a fully insured plan from an insurance carrier.
Let’s examine the pros and cons of each option and get to the bottom of your healthcare conundrum.
What are fully insured health plans?
A fully insured plan is a group health plan in which the employer or association purchases coverage directly from an insurance company. It is the traditional approach to employee benefits: You pay a monthly premium to the carrier, which covers your members’ medical claims.
- Less financial risk: In a fully insured plan, the insurance company assumes all responsibility for providing health coverage — including the cost. Employers are protected from catastrophic claims running up an enormous medical bill.
- More financial predictability: Premium rates are annually fixed, so employers don’t have to worry about large claims suddenly blowing a hole in their budget. It is easier for companies to forecast healthcare costs and remain financially viable.
- Fewer administrative burdens: The insurance carrier takes the lead in providing administrative services like open enrollment or claims processing.
- Little customization: Fully insured plans are more rigid and limited, with little room to tailor the plan design according to your members’ needs. It can be difficult for users to access certain healthcare services.
- No cost savings: The plan sponsor won’t receive a refund from the insurance company for any leftover money not spent on medical claims during the year.
- State laws and taxes: Fully insured plans are subject to state legislation and premium tax rates.
Working with an insurance company to fully fund your health plan is the traditional route. It offers financial protection but little freedom in the way of plan design.
What are self-funded health plans?
The government defines a self-funded plan (also called a self-insured plan) as one in which an employer directly collects premiums from enrollees. In other words, the plan sponsor takes on the responsibility of paying medical claims.
- Freedom to customize: Because you’re not limited to what your insurance carrier offers, you have more flexibility to build a health plan that works best for your members. You create a better employee benefits experience by giving members access to the services they’re looking for, such as mental health counseling or disease management programs.
- Cost savings: The healthier your members, the less you spend on medical claims. At the end of the year, your monthly costs are reviewed against the total claims paid out. The amount left over is generally returned to the employer.
- Lower taxes: Employers don’t have to pay costs associated with traditional health insurance coverage, like taxes on gross premiums, administrative and underwriting costs.
- Compliance: Self-funded plans are exempt from state legislation because they are preempted by the Employee Retirement Income Security Act (ERISA).
- More financial risk: As a plan sponsor, the employer assumes all responsibility for providing health insurance and paying health care costs out of pocket. However, stop-loss insurance can protect you from catastrophic claims by reimbursing you for expenses that exceed a set amount.
- Administrative burden: Self-funding means all administrative duties are also the responsibility of the employer, unless they outsource tasks to a third party administrator (TPA). This work can be a lot to handle and may distract employers from core business operations.
Despite its financial risk, self-funding is a much more tailored approach to employee benefits that also opens the door to tremendous cost savings over the long term.
MagnaCare: A smart way to self-fund your plan
Ultimately, there’s no magic formula when it comes to health insurance. You have to decide what’s best for you and your members, which is why so many businesses choose to self-fund their coverage.
The truth is that organizations have trended this way for a long time. In fact, 65% of covered persons in the United States are in a self-funded plan — a sizable increase from 10 years ago.
Self-funding does have administrative challenges, however. That’s where a third party administrator like MagnaCare comes into play.
As one of the nation’s leading TPAs, we help you take the pain out of self-funding and design a health plan that meets your members’ expectations and lowers your costs — all while providing you access to a robust network of high-quality providers.
From claims processing to enrollment and everything in between, we’ve got you covered.
Want to learn more about MagnaCare’s TPA services? Contact our team today.