When traditional fully insured health plans make sense for employers
With its promise of predictability, a fully insured plan may be the best route for some employers.
Even with health care premiums rising,1 many employers opt for fully insured plans because they provide consistent and predictable monthly costs.2
In a fully insured health plan, the employer pays a fixed premium to the health insurance carrier, which covers the cost of employee health care. When employees use their benefits and incur health care expenses, the insurance carrier is responsible for paying the claims, not the employer.
“Even though fully insured prices have increased, they remain a predictable fixed cost for the employer. This often can offer more stability versus a self-funded environment where claim costs can have more variability,” says Greg Reidy, East Region CEO for UnitedHealthcare Employer & Individual.
This means that the financial risk and responsibility are transferred to the carrier. Additionally, the carrier handles much of the administrative work and ensures compliance with regulatory requirements.
However, because the carrier assumes the risk, fully insured plans can be more costly for employers compared to other options. For example, the total of the employer's monthly premium payments over a year might exceed the actual claims made by employees.
Despite the potential higher costs, fully insured plans offer several significant benefits, especially for employers who lack the staff, resources or expertise to manage health care benefits independently or for employers with high employee claims who may find the predictability and risk mitigation offered by a fully insured plan appealing.
Fully insured plans work well if employers need a high degree of support
Many employers want to offer their employees quality health benefits, but they don’t have the time or personnel to manage the process themselves. This is especially the case for small businesses, who are busy managing the day-to-day operations — including keeping track of cash flow, hiring and training employees, marketing their business and more. They may not have the time to work with a broker or carrier on customizing a health plan, let alone administer it effectively.
With a fully insured health plan, employers can outsource the responsibility of meeting federal and state legal requirements to the insurance carrier. This helps employers avoid the burden of ensuring compliance with various laws and regulations.
With a fully insured plan, employers can typically choose from a variety of off-the-shelf benefits packages, offer it to their employees and hand off the administrative burden, compliance requirements and claims payments to the carrier.
Fully insured plans work well if employee claims are unpredictable
Sometimes, the employer’s workforce can dictate what type of funding is best. There can be a wide cost differential for an employee population that is relatively healthy versus one that is marked by a number of serious health issues, such as costly chronic and metabolic conditions. Take cancer: By 2027, cancer is expected to comprise 30% of employer health spend.3 And when an employee has diabetes, employers pay an average of around $14K annually for their medical costs.4
This means that if an employer's workforce includes employees with cancer diagnoses or pregnancies, which can increase health care claims, a fully insured plan with a fixed monthly premium can provide a sense of financial security.
Fully insured plans work well if employers favor routine over risk
With a fully insured plan, the employer and carrier typically agree on a fixed monthly premium at the start of the plan year, based on the employer's workforce and the insurer's fees. This premium remains the same throughout the year, allowing employers to budget with certainty.
For employers who are risk-averse, especially smaller ones, a fully insured plan is often the best choice. Larger employers, with a broader workforce, can spread the risk of high claims more easily, but smaller employers benefit from the predictability and stability of fixed costs.
Overall, a fully insured health plan offers a predictable and cost-effective solution for employers looking to provide quality health care coverage, even if it means less control over plan customizations and provider networks.
But for employers willing to take on more risk for greater control and flexibility over their benefit strategies and the potential for cost-savings, self-funded or level-funded plans may be more appropriate options. To determine whether an employer is ready for one of these funding types, check whether these 7 characteristics apply.
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