With the health care industry’s current state of flux, many companies are exploring the value proposition between self-funding their health plan versus a fully insured program.
Albert Ertel, chief operating officer of Alliant Health Plans, says there are similarities between self-funding and the traditional fully insured route, but employers should know the differences and educate themselves before making a decision.
“The basic functions are the same. It boils down to the appetite for risk the employer has,” he says.
Smart Business spoke with Ertel about how to determine which type of insurance is right for your organization.
What are the differences between a self-funded and fully insured plan?
The major differences between these options can be boiled down to risk and services included. In self-insurance, the employer becomes the health insurance ‘company.’ The employer is insuring its employees and their families. Providing health care for this population may be difficult to quantify. Additional coverage or reinsurance is available to insure against potential catastrophic losses.
In the fully insured world, the insurance company takes financial responsibility to pay eligible health care expenses and administrative expenses for that population. The insurance company takes the risk and responsibility to do it all: administration, eligibility, enrollment, ID cards, claim payment, customer service, coordinate care, etc.
In self-insurance you are the plan, the administrator and coordinator. You hire additional experts on your behalf to get it done. Potential savings comes from lower cost of administration. Self-funded plans are not subject to state insurance laws or taxes. However, as federal health care reform ramps up, that flexibility may be disappearing.
What does ‘unbundling’ services mean and how does it affect self-funded insurance?
Most services are included as a ‘bundle’ in fully insured plans. The insurance company is at risk, so medical management, care coordination and a basic wellness program are inclusive. By unbundling, self-insuring companies determine which services they will use in their plan. At a bare minimum, they are going to need a TPA (third-party administrator), provider network, and case management. Adding other services like wellness programs or disease management is up to the employer. Employers may consider other technology-based services offered in many fully insured programs including PHR (personal health record) and Internet access to claims and potential treatment costs (transparency).
