SELF-INSURED VS. FULLY INSURED: WHAT IT TAKES TO CUSTOMIZE HEALTHCARE PLANS
By Deanna Cuadra August 21, 2023, 4:11 p.m. EDT 3 Min Read
As employers watch healthcare premiums rise each year, many are questioning whether their health plans are sustainable or a liability to their employees and business.
That brings employers to an age-old benefits question: to be self-insured or fully insured?
A majority of employers are fully-insured, meaning they pay a monthly premium to a health insurance company in exchange for their employees' healthcare coverage. A self-insured employer takes on the financial risk of directly providing healthcare benefits that are unique to their workforce, paying for a share of their employees' appointments, treatment and medication. Self-insured employers often work with a third-party administrator (TPA), which specializes in handling the administrative side of healthcare benefits.
While the financial responsibility and logistical hurdles that come with a self-insured plan are intimidating, it can save employers money in the long run and lead to more quality care, underlines Ali Diab, CEO of Collective Health, a TPA for self-funded employers.
"There's a fallacy or a fear that by self-insuring you're going to expose yourself to risk that you otherwise wouldn't with a fully-insured plan," he says. "But that's not true. Self-insurance doesn't have to be complicated."
Once employers analyze their employees' medical claims history and demographics, they can build their health plans to address noted health risks and push for better preventative care, explains Diab. From there, the results speak for themselves: on average, businesses who work with Collective Health see a 50% reduction in healthcare costs over a five-year period.
And while self-insured plans are far more common among large employers, Diab stresses that smaller employers can do it too.
"An employer with a few hundred employees can typically self-insure quite safely, although this can depend on the age and other characteristics of the cohort," says Diab. "It's often just administratively not something a lot of employers with several hundred or even a few thousand employees want to take on."
Diab points out that administrative challenges should be something companies like Collective Health deal with on behalf of the employer. As for the financial risks, employers can get a medical stop-loss insurance policy, which places a maximum on healthcare spend per employee on their benefits plan and reimburses the employer in the event it is exceeded.
Still, self-insurance comes with its hurdles. Diab notes that insurance carriers don't necessarily make it easy for employers to switch from fully insured to self-insured, given that they make more when employers are
dependent on their plans. For instance, many employers struggle to access claims data from their insurance company, making it difficult to assess their workforce's specific needs, let alone have the information they need to become self-insured.
"If you're providing a service to a customer and the customer is the only way you get paid, then your incentives are aligned really well," he says. "If you're buying a fully-insured plan, then the big insurance company could also work with a pharmacy benefits manager and be incentivized to mark up the price of a drug and sell it to you — unfortunately, that's why they have a perverse incentive not to want to share data with you."
The lack of transparency is a big motivator behind employers switching to self-insured health plans. In a country that has one of the highest costs of healthcare in the world, it's only fair that employers want to know where their money is going. Not to mention, self-insured plans push employers to prioritize preventative care above all else in order to keep their expenses low, notes Diab. In a healthcare system that often antagonizes employers and employees, self-insurance offers an alternative path — one that in Diab's experience is worth trying.
"From what we see in our data, there is a significant increase in 'good' healthcare among employees, meaning preventive visits, screenings and generally staying on top of their health," says Diab. "Once you make the right care accessible, people take full advantage of the health plan their employer has paid a lot of money to procure on their behalf."
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