A fully funded plan is a type of health insurance arrangement where the employer pays a fixed premium to an insurance carrier who then provides health care benefits to its employees. Unlike a self-funded plan, where the employer pays the claims directly as they occur, a fully funded plan transfers the financial risk and responsibility to the insurance carrier. This means that the employer has less control and flexibility over how to design and manage the health plan, as well as how to invest and use the health plan reserves. A fully funded plan can also offer more predictability and stability for the employer, as well as more protection and security for the employees.
How Does a Fully Funded Plan Work?
Typically, a fully funded employer will choose a health insurance policy from an insurance carrier that suits its budget and workforce. The employer will pay a fixed monthly premium to the insurance carrier, no matter what claims were made by employees, and the insurance carrier will pay the claims from employees as they occur. The employer will also rely on the insurance carrier to handle the claims processing, billing, enrollment, and other administrative tasks. The employer may also access the insurance carrier’s network of providers and discounts or choose a preferred provider organization (PPO) or a health maintenance organization (HMO) to access their network of providers and negotiate discounts.
What are the Benefits of a Fully Funded Plan?
There are many benefits of choosing a fully funded plan over a self-funded plan, both for the employer and the employees. Some of the most common benefits are:
- Plan Design Simplicity: The employer can choose from a variety of health insurance policies that are already designed and regulated by the insurance carrier, instead of creating and managing its own health plan that may not comply with state or federal laws. For example, the employer can select from different levels of coverage, deductibles, copays, wellness programs, etc.
- Cost Predictability: The employer can budget more easily by paying a fixed monthly premium to the insurance carrier, regardless of how much or how little health care its employees use. The employer can also avoid unexpected or catastrophic claims that could exceed its financial capacity or resources.
- Regulatory Compliance: The employer can comply with state health insurance regulations and benefit mandates, as fully funded plans are regulated under state law. This can ensure that the employer meets the minimum standards and requirements for providing health care benefits to its employees, as well as avoid penalties or fines.
- Data Protection: The employer can protect the privacy and confidentiality of its employees’ health information, as it does not have access to detailed or timely data on claims utilization, costs, trends, quality, and outcomes. The data is owned and managed by the insurance carrier, who is responsible for complying with federal laws (HIPAA) and state laws on data security and privacy.
- Care Protection: The employer can provide more protection and security for its employees, by ensuring that they have access to adequate and affordable health care benefits from the insurance carrier. The insurance carrier is responsible for paying the claims from employees as they occur, as well as providing customer service and support.
Is a Fully Funded Plan Right for You?
Fully funding is not a one-size-fits-all solution. It may not be suitable for every employer or every situation. Some factors that may influence your decision to fully fund include:
- Size of Your Workforce: While fully funding is available to employers of any size, it does require a certain level of predictability and consistency in your employee population. A large or fluctuating workforce may not benefit from the fixed monthly premiums that fully funding entails.
- Financial Risk Aversion: While fully funding can protect you from unexpected or catastrophic claims scenarios, you still need to be comfortable with paying a higher and fixed amount for your healthcare coverage. You also need to be willing to forego any potential savings or rebates that self-funding may offer.
- Administrative Simplicity: While you can rely on the insurance carrier to handle most of the administrative tasks for your health plan, you still need to be aware of and follow the state laws and regulations that apply to fully funded plans. You also need to accept the limited control and flexibility that you have over your health plan design and management.
- Strategic Vision: You need to have a clear vision and goal for what you want to achieve with your health plan, such as providing adequate and affordable healthcare benefits to your employees, complying with state and federal mandates, maintaining your competitive edge, etc. You also need to have a short-term perspective and commitment to fully funding, as it may not allow you to adapt or innovate your health plan strategy.
If you are interested in learning more about fully funding and whether it is right for you, contact us for a free consultation. We can help you compare your options, choose your plan, and enroll your employees.