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Benefits: fully insured vs. self-funded? What did you choose and why?

Self Funded vs Fully InsuredI'm wondering if anyone considered moving from a fully insured medical plan to a self-funded plan for your 2014 plan year. If so, did you make the switch? Why or Why not?


Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

self funded plans are generally for larger organizations and analyze the demographics of their employee health; smaller organizations where one catastrophic claim can increase costs of a self funded plan may be too much of a risk (although there could be some reinsurance/stop loss provisions that can provide some protection to this); visit this site to read more about these different approaches.

Don Wademan
Title: Vice President Operations
Company: Lester Electrical
(Vice President Operations, Lester Electrical) |

We are a smaller employer (~200 employees) who maintains a self-insured plan up to a high retention limit, reinsuring the excess over the retention limit. We employ wellness programs for our employees as a means of keeping health care costs low. As well, we have sufficient capital resources to sustain the eventual large claims that will occur over time. For us, it was a matter of reviewing the long-term economics of being self-insured vs. participating in a fully insured plan. We felt that we could more economically manage the process by setting premium rates similar to fully-insured plans; ensuring that the excess generated in the fat years was maintained for the lean years, and understanding our claims as a means to manage future claims.
Sustaining this requires good management internally and partnering with a good consultant to ensure you have good data available on claims costs; how to manage them and structure your plan and premiums accordingly.

Alan Aidif
Title: Senior Manager
Company: Financial Services LTD
(Senior Manager, Financial Services LTD) |

In addition, many self-insured plan managers are utilizing off shore health facilities for major claims as a means to reduce claim expenses. This is not available under the traditional fully insured plans.

Bob Owens
Title: CFO
Company: OTR Wheel Engineering Inc
(CFO, OTR Wheel Engineering Inc) |

We went to a self funded plan two years ago. We have 200 employees. We switched because we had an employee suffer a brain injury that disabed him but left us responsible for his expensive medical insurance for two years due to his COBRA rights. The cost of the one person's coverage doubled our insurance costs for the company for a fully insured plan (this gentlemand bills for the two years were huge!). We opted for a self funded plan with two stop loss provisions, a individual maximum stop loss ($75,000) and a company wide stop loss. BCBS administers our plan allowing us access to their discounts. BCBS also provides us a breakdown from there actuaries of what the adminstrative costs are for administering claims, purchasing the stop loss insurance on our behalf, what they expect us to incur in medical bills and a worst case of what they expect we could incur (that's what is used for the stop loss on the company total). We fund the plan at the mid point of the expected and worst case scenario (which equals about 90% of what a fully funded plan would cost) into a seperate company medical bank account on a monthly basis. BCBS debits the account weekly for claims they paid and once a month for the administrative fee. Currently we have a very large surplus in the medical account because our actual incurred costs are much less then even the expected projections for both years we have been self funded. We have been advised that every 4th or 5th year to expect to have a bad year that will equal the worst case projection. With the self funded plan, including the two loss protections, we get the benefit if our medical claims are less then expected (under a fully insured plan the insurance company gets the benefit) while minimizing the effect of a very bad year. We see it as a way to control our costs. Because of using BCBS, like we had for the fully funded plan, there is no difference to employees in how the insurance works or is adminstered. They present the BCBS card like they previously did and claims are paid exactly as before.

Jack Judd
Title: Retired
Company: Retired
(Retired, Retired) |

We evaluated this year but chose to stay fully insured as a rate guarantee from our provider was too good to pass up. I am sure in future years we will explore self-insuring more fully.

A self-insured plan does expose you to more accounting work each quarter. You will always have a lag in claims that will need to be tracked. You will also have more variability in your expenses from period to period.


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