Employers should consider some important facts while setting up a health insurance plan for their employees, such as the type of health plan they are offering and its structure. There are two ways by which a Health-Insurance plan is structured, fully-insured and self-insured.
Based on these two, the cost of your health insurance plan varies; we have compared both the structures below so that you may understand them easily.
Difference Between Fully-Insured and Self-Insured (Self-Funded)
Fully-Insured Health Insurance Plan
Usually, the employer-sponsored health insurance plans are based on a fully-insured structure. To understand the working of a fully-insured health insurance plan, read the details given below.
- The employer pays the insurance carrier a premium
- Cost of premium is fixed for a year depending on the number of employees enrolled in the plan monthly
- The premium is only changed if the number of employees enrolled in the plan is changed
- The insurance carrier collects the premium and pays the health insurance claims according to the policy on which the plan is based
- For any other deductibles or co-payments, it is the responsibility of the covered person, such as an employee or a dependant under the policy
What is a Self-Insured Health Plan?
In a Self-Insured Health Plan or Section 105 plan, the employers tend to run their own health plan rather than purchasing it from a health insurance carrier. The reason for choosing the self-insured health plan is because employers can save significantly on premiums. But if they have more claims than expected, they will be exposed to much greater risk. That is why employers need to understand the cost of self-insured health plans. To do that, read the working of the self-insured plan given below.
- The employer calculates the fixed cost and the variable cost for the plan
- In fixed cost, administrative fees, stop-loss premiums, or the set fees charged per employee is included
- These costs can be in the form of salary for the staff to manage the program or the software administration service who can handle several management tasks at once or a fess to pay a third-party administrator
- In variable costs, health care claims are included. But these costs vary monthly based on health care use by the employee or the dependant
- Some employers also use stop-loss or excess-loss insurance, which compensates for claims exceeding a certain predetermined level. Employers can only use this plan to cover the dire claims on one person (covered by the plan) or cover the claims that significantly exceed the expected level for multiple covered persons.
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HRA (Health Reimbursement Arrangement)
In an HRA (Health Reimbursement Arrangement), the employers compensate their employees for their medical expenses. It is a type of self-insured plan that has fewer management risks and risks.
The employers can receive the following benefits by using the HRA Plan.
- The savings on premiums will be the same as for the regular self-funded plan
- Rather than insurance carriers, the costs are controlled by the employers. All the variable costs will be set to a limit that fits the employers’ budget
- Because the employers will be purchasing the plan from an insurance carrier, there will be no need to buy the self-loss coverage
- The insurance carries will handle all the claims processing, so the employers will not need to hire more staff
Common Types of HRAs
Individual Coverage HRA (ICHRA)
With ICHRA, employers offer employees a certain amount of allowance to purchase their own individual health insurance plan from their state or Healthcare.gov. More so, employers have the option to cover out-of-pocket expenses like copays as well.
Qualified Small Employer HRA (QSEHRA)
QSEHRA is the same as the ICHRA. It is the easiest HRA to implement by far, but it has some limitations. Such as you cannot implement this HRA if you have more than 50 employees. This way, the employers can compensate a limited number of employees.
Group Coverage HRA (GCHRA)
With GCHRA, the employers reduce their premiums while keeping the fully-insured plan by choosing a high deductible plan. Furthermore, they can compensate employees for their out-of-pocket expenses in the form of copays.
That is all with a Fully-Insured Plan and Self-Insured or Self-Funded Plan. If you have any questions regarding the topic discussed above, please feel free to share them with us via the website’s comment section below. Your feedback is always welcome and precious to us.