Fully Insured vs. Self-Funded Health Insurance Plans

Fully Insured vs. Self-Funded Health Insurance Plans by Elements magazine | pbahealth.com

Many people, including your patients, don’t understand the differences between fully insured and self-funded health insurance plans. They are comforted enough by the knowledge that they simply have health care benefits. As a pharmacy owner, it’s important for you to understand the basics of fully insured and self-funded insurance plans because you’ll likely encounter various issues when dealing with the plans in your everyday business.

Historically, smaller businesses have chosen to be fully-insured by an insurance company, though more and more of these companies are choosing to take advantage of the rewards of self-funding, while still understanding the economical risks involved. According to the 2011 Kaiser Family Foundation Employer Health Benefits Annual Survey, 60 percent of covered workers are in a self-funded plan.

Understanding fully insured plans

A fully insured business receives and processes its health insurance benefits through an insurance company by paying a premium on each employee. These premiums vary based on the number of employees. Also, characteristics, such as age or number of dependents, and the types of coverage the business is able or willing to offer its workers will influence the cost of these premiums.

The insurance company’s administrative service department will receive, process and assume risk for the employee claims. The administrative fees for a fully insured business may also include aggregate stop-loss coverage (reinsurance) as a provision for high-dollar claims. If the stop-loss coverage is not included, the business will purchase this separately. The insurance company uses the premium payments to cover the medical expenses of the employees. Any amount of the premium that isn’t used becomes profit for the insurance companies, on top of any administrative costs incurred by the covered business.

Insurance companies will typically contract with a PBM and PPO’s of their choosing, hence establishing the employee’s network of available hospitals, clinics, pharmacies and other health care professionals. Lastly, the insurance company is governed by the state-regulated Department of Insurance (DOI) and subject to that state’s mandates and provisions.

Understanding self-funded insurance plans

Businesses that choose to self fund their health benefits will act as their own insurers. Instead of paying an insurance company, the business is, in effect, paying the health care providers directly. Businesses acquire the same stop-loss or reinsurance coverage for the same reasoning as fully insured plans, but it’s often more important to the self-funded plan.

Several large claims can cause financial damage to a smaller business. The business establishes its premium levels according to prior year(s) claims data. The leftover premiums, if available, go back into the business instead of becoming the part of the insurance company’s profits. A self-funded plan allows a business greater freedom in choosing the services and networks it deems most valuable or convenient to its employees.

Self-funded plans are regulated on a federal level under ERISA, a set of standards enacted by Congress in 1974 that requires self-funded plans to offer employees certain benefits, such as COBRA and HIPPA.

Many businesses choose to hire a third-party administrator or to utilize an insurance company for plan management and claims processing. A third party network, like TriNet Third Party Network by PBA Health, can assist your pharmacy with the various complexities you may encounter when dealing with a fully insured or self-funded plan.

How a third party network can assist you

As the owner of two community pharmacies and a DME business, Tim Mitchell, R.Ph. of Neosho, Mo. understands the importance of a trusted third party network. “Third party issues can be complicated. PBA Health and TriNet are there to help, and they really go above and beyond to take care of any issues that may come up,” Mitchell said. “They’re like an older brother or a trusted friend who keeps you on the right path with timely assistance and good advice.”

Third party networks are a valuable asset to any company; the level of service a business receives from its third party network can have a huge affect on the bottom line. TriNet is a pharmacy services administration organization (PSAO) that has the unique combination of financial, technical, pharmaceutical and legal expertise to evaluate every PBM contract.

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Elements is written and produced by PBA Health, a buy-side solutions company.

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