Fully Insured

A fully insured medical insurance plan is one where the employer provides benefits to his/her employees by purchasing health insurance coverage from an insurance company. In exchange for premium payments, the insurance company bears the full risk for the cost of the benefits provided. . If claims paid for the year are less than premium paid for the same year, the insurance carrier keeps the difference. If, on the other hand, claims are greater than the premiums paid for the year, the insurance carrier absorbs all losses.

Fully insured plans means that in exchange for premiums, the insurance company accepts all of the risk associated with a particular group. This proves advantageous for groups who present a significant risk, as the cost impact is absorbed by the insurance company and then passed on to the group in the way of annual rate increase. Fully insured funding of medical plans is simple to understand and operate. The employer has a fixed monthly premium cost for each employee’s coverage regardless of the claims incurred. For the monthly premium, the employer has shifted all of the claims risk to the insurance company.

The primary disadvantage of a fully insured plan is that there is no opportunity for the employer to share in the rewards in years when the plan performs well. Because fully insured plans are not transparent it is difficult for the employer to determine what percentage of his annual rate increase is attributable to his own costs, versus those of the pool, funding may cost more than other funding methods. Other funding methods require risk shifting to the employer. The benefits decision maker must evaluate if the expectation of lower premium cost warrants assuming claims cost that would make the plan more expensive. Employer industry, number of employees, health of the workforce and other factors all play a role in identifying if a fully insured plan remains the optimum choice.