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- There are two ways that a group plan or employer-based plan can be structured in two ways: either as a fully insured plan or a self-funded plan
- With a self-funded health plan, employers technically operate the health plan as opposed to a plan from an insurance company that would be fully insured by them
- A fully insured health plan is the more common way for an employer to be insured
- There are several variations of self-funded plans including a partial plan with an integrated HRA and a self-insured medical reimbursement plan
What is a fully insured health plan?
A fully insured health plan is the way most employers choose to offer health insurance. With this type of plan, the company will pay a monthly premium amount to the company that is insuring them. The premium amount is fixed at an annual rate based on the amount of employees that are covered by the plan.
The monthly amount is subject to change if the amount of employees enrolled in the plan in any given month changes.
The insurance company takes the premium amount and uses it to pay any claims they are responsible for according to the benefits and policies laid out in the plan. The employees, as well as their spouses and dependents, are responsible for paying any co-payments or deductibles associated with the plan.
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What is a self-funded medical insurance plan?
Self-funded medical insurance plan is different than a fully insurance health insurance plan because the employer is responsible for operating the plan and paying some of the costs.
A company may choose this option as opposed to a fully insured plan because they do not have to pay the additional costs added to the premium for that type of plan.
A self-funded plan can cause problems for the company if they are required to pay out more claims than they anticipated.
There are generally two types of costs that employers will have to consider when undertaking a self-funded medical insurance plan. These are the fixed costs and the variable costs. Fixed costs include any fees that are charged per employee or for administrative purposes and any stop-loss premiums.
The insurance company will typically bill an employer monthly for these charges and they are calculated based on the number of employees enrolled in the plan.
The variable costs are the health care claims that the employer must pay out for their employees and their dependents. This amount can vary from each month depending on the health services employees received during this time.
There are stop loss or excess loss options affiliated with this type of insurance to ensure that employers receive reimbursement if the total of claims goes over a certain amount.
Employers have the option to purchase specific coverage, which can help cover an excessive amount of claims for one person, or they can purchase aggregate coverage, which helps with the payment of claims when the total amount of claims is much higher than expected for that specific group of employees and dependents.
What are some variations of self-funded medical insurance plans?
Due to the risks and costs that can be associated with self-funded medical plans, there are variations of this type of plan that can help employers reduce their risks and costs.
One type of plan employers may choose to purchase is a partially self-insured plan with an integrated HRA. This option allows employers to raise the deductible for employees covered under their group insurance plan and then the remaining amount will be self-insured using the integrated health reimbursement arrangement.
The company saves money using this method because with such a high deductible, most employees will never reach their limit and therefore the company does not have to reimburse them this total amount. They will only have to reimburse the employees for the amount of money that they use.
Another option employers have to protect themselves and lower risk and cost is to purchase a self-insured medical reimbursement plan, such as a healthcare reimbursement plan, which is slightly different than a health reimbursement arrangement.
This plan is typically only utilized by smaller companies because it is not technically considered a health insurance plan.
Using this option, employers will reimburse employees for their own individual health insurance costs, as opposed to offering a group plan for all employees.
A healthcare reimbursement plan is structured in a way that allows employees to be reimbursed for their monthly premiums up to a set allowance and offers unlimited preventative care options and no cost sharing.
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