Understanding the Difference Between Fully-Insured and Self-Insured Programs

To an employee, a fully-insured health insurance plan should look and feel just like a self-insured plan. However, there are a few key differences business owners and leaders should understand before choosing one type of health insurance plan over another.

Fully-Insured Plans

With fully-insured plans, the employer pays annual policy premiums to the insurance company. The amount of the premium payment varies but is generally based on the type of policy chosen and the number of employees to be covered under the plan. The insurance company pays claims that are covered under the terms of the policy, while the employer is only responsible for paying the policy premiums.

Fully-insured plans provide some financial certainty for the employer because the insurance company is assuming the risk. There are also very few administrative expenses related to the plan because the insurance company handles everything.

Self-Insured Plans

In contrast, under a self-insured health plan, employers essentially act as their own health insurance company. Rather than paying premium payments to an insurance carrier, the business retains those funds, paying an insurance company or plan administrator to handle administrative tasks and claims management. Self-insured plans are also referred to as “self-funded” plans or “Administrative Service Only” (ASO) plans.

Whatever you call them, while the plan may still be administered by a major health insurance carrier, the insurance company isn’t actually on the hook for paying claims; the business itself is responsible for that. This can result in either additional savings to the employer, or additional risk, depending on plan participants’ claims.

When to Choose Fully Insured vs. Self-Insured

Deciding to offer employees fully-insured vs. self-insured health care plans should be done only after evaluating the benefits and drawbacks of each approach.

Fully-insured plans are the more traditional option. This type of plan tends to work well for smaller companies that don’t have the financial resources – or the time – to self-insure. Because the insurance company handles all of the claims administration work, the company’s owners or human resources staff are free to focus on growing the business without worrying about administering the plan.

Self-insured plans generally work well for companies looking for more customization of, and more control over, the plans they offer workers. Employers who choose self-insured plans like the fact that self-insuring creates the potential for lower out-of-pocket costs, both for the business and for employees participating in the plan.

Large businesses tend to prefer self-insured plans over fully-insured options. However, small- and mid-sized businesses can also choose self-insured health plans. Businesses of any size whose workforces are made up primarily of young, generally healthy workers may end up realizing significant cost savings by self-insuring if claims are few and relatively low.

Of course, nobody knows ahead of time what the coming year’s claims experience will look like. Even young, seemingly healthy employees may have significant health care expenses. One protection for any company offering a self-insured plan is to purchase stop-loss insurance. This type of policy says that the insurance company will pay claims that exceed a predetermined amount. This can help limit the business’ financial risk when choosing a self-insured plan.

Which Option Works for Your Business?

Choosing a self-insured or a fully-insured health care plan for your business is a major decision. It’s important to select a plan option that works for your business model and structure, and for your budget.

While fully-insured plans may be attractive because they allow businesses some budget certainty when it comes to health care costs, self-insured plans can ultimately be more cost-effective in the long run.

Can Help Your Company

The bottom line is that while one company may find that choosing either a self-insured health insurance plan is most advantageous, another similarly sized company in the same industry might determine that a fully-insured plan is the best fit.

Reviewing options and making decisions about whether to choose a fully-insured vs. a self-insured health care plan can be overwhelming. Fortunately, an employee benefits consultant can help you evaluate both options and make an informed decision that makes sense based on your business’ current and anticipated future needs and goals.

At we work with businesses of all sizes, in a variety of industries, helping them design and implement health insurance and other employee benefits programs designed to help them attract and retain high-performing talent, while keeping benefit program costs in check.

To learn more about how we can help, contact us online (infor@benefitwriters.com) today, or call us at (214) 771-3011.

⊕Disclaimer: Section 202 of the Consolidated Appropriations Act of 2021 (CAA) requires that agent, broker and consultant compensation related to all group health plans and individual health insurance policies be disclosed for arrangements entered into, renewed or extended on or after December 27, 2021. This law requires agents, brokers and/or consultants (and their subcontractors) to disclose their compensation to plan fiduciaries. Specifically, any covered service provider that receives compensation in excess of $1,000 annually must provide this disclosure. The disclosure must include amounts paid directly and those received indirectly related to group and individual health plans. This requirement applies to contracts with both fully insured and self-funded group health plan arrangements.