Fully Insured Vs. Self-Funded Insurance

If you work full-time and receive health insurance as a benefit of your employment, it helps to understand the type of insurance plan that covers you. Employers who provide group health coverage for their employees can typically choose between two primary types of coverage: fully insured health insurance and self-funded insurance. Each plan has advantages and disadvantages for the company and its employees.


If your employer offers a fully insured plan, he pays a premium to a third-party company that covers the cost of his employees' medical care. The third-party insurer approves or denies all claims, and employees pay deductibles and co-pays. Self-funded insurance doesn't involve a third-party insurer. Instead, the employer sets the price of premiums, collects them from employees and pays their covered medical costs.


Employers often choose self-funded insurance plans because they are cheaper than fully insured plans. According to Inc. magazine, implementing a self-funded insurance plan can save employers between 10 and 20 percent. Because the employer doesn't have to compensate a third-party insurer, he can charge lower premiums, which can be beneficial for employees. However, self-funded insurance is also more risky. If an employee is in an accident or becomes seriously ill, the employer may lose a great deal of money covering the employee's bills.


Even though many self-funded insurers charge their employees lower premiums, some companies with a lower number of employees may charge higher premiums to reduce the risk of paying out more in claims than they bring in. Likewise, employers offering self-funded policies may reduce the amount of coverage employees receive to save money on claims, especially if one or more employees have suffered serious injuries or become terminally ill.


Before you accept a job offer, learn as much as you can about the employer's health insurance policy. If the company is self-insured, inquire about the presence of stop-loss coverage, which prevents a company from spending more than it can afford on large claims. Companies with stop-loss coverage are more likely to offer stable insurance to their employees. If your company's policy doesn't cover all of your health care needs adequately, consider purchasing supplemental coverage to fill in the gaps.