Fully Insured vs. Self-Insured Health Insurance
With a self-insured health plan, your employer pays for your medical claims directly. With a fully insured plan, an insurance company pays claims on behalf of an employer.
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Both fully insured and self-insured plans are types of health insurance that you get from your job, broadly called group coverage. For employees, fully insured and self-insured plans work basically the same way. With either plan type, you'll still have an insurance company, ID cards and an online portal. The major difference comes into play with who pays the claims, but that doesn't affect you or your coverage.
Self-funded vs. fully insured health plans
Employees won't usually notice a difference between self-insured and fully insured plans.
The difference happens in the way the plans are set up for the employers who offer them.
With a self-insured plan, the employer has to set money aside to pay the medical bills of its employees. That requires more planning and work for the employer. However, because the health insurance company doesn't have to pay the claims directly, self-insured plans can be cheaper for employees.
With a fully insured plan, employers don't have to set money aside or plan for how much medical care their employees might need. That's because the insurance company pays for the claims directly. However, rates for fully insured plans are likely to be more expensive, because the insurance company has to cover the cost for the claims rather than the employer.
What is a self-funded health plan?
With a self-insured plan, also called a self-funded plan, an employer sets aside money to pay for its employees' medical bills.
From an employee perspective, self-insured coverage works just like any other health insurance plan. You'll likely still have coverage from a health insurance company. Your doctors will still file claims with that company and you'll still get a breakdown of your coverage for each claim.
That's because, with most self-insured plans, a health insurance company handles the administrative tasks for your plan, just like with a fully insured plan. This means the insurance company is a third-party administrator.
The difference happens behind the scenes. With a self-insured plan, your employer sets aside money to pay your medical bills instead of relying on the insurance company's money to pay. That means the money that pays your claims comes from your employer, not from a health insurance company. Larger companies are more likely to self-insure because bigger companies have more resources compared to smaller companies. It's easier for them to plan ahead and put money aside for medical bills.
Self-insured health plan statistics
- Large companies, those with 500 or more employees, are much more likely to self-insure than smaller companies. In 2023, 74% of large companies had at least one self-insured health plan.
- The number of small- and medium-sized companies choosing to self-insure is gradually going up. Between 2010 and 2023, the percentage of small businesses that had at least one self-insured plan went from 13% to 16%, while the percentage of medium-sized businesses went from 27% to 32%.
- In 2024, nearly two-thirds of employees who had health insurance were in a self-funded plan.
- Health care is the most likely industry to self-insure its workers. About 87% of all health care workers were in a self-insured plan in 2024.
- Companies in the agriculture, mining and construction industries are the least likely to self-insure their plans. Only about 37% of workers in these industries were in a self-funded plan in 2024.
What is a fully insured health plan?
A fully insured health plan means that your employer buys plans from an insurance company.
The health insurance company is then responsible for paying your claims. The money that pays for your medical bills comes directly from the insurance company, not your employer.
You're more likely to have a fully insured plan if you work for a small- or medium-sized company than a larger company. That's because small- and medium-sized companies might find it harder to set the money aside to pay for their employees' medical bills.
Frequently asked questions
What's the difference between fully insured and self-insured?
A fully insured health plan is a plan that an employer buys from an insurance company. The insurance company then handles all the coverage and pays the claims. With a self-insured plan, sometimes called a self-funded plan, the employer's money goes toward paying the claims. An insurance company still handles the day-to-day management of the plan, which means that employees still work with a health insurance company. However, the employer sets aside money to pay the claims rather than relying on the insurance company to pay them.
How do I know if my insurance is self-funded or fully funded?
The best way to find out if your plan is self-insured or fully insured is to talk to your company's human resources or benefits department. You can also check with your insurance company. Remember that if you work for a company with 200 or more employees, it's more likely that your plan is self-funded than if you work for a smaller company. However, for employees, self-funded plans usually work the exact same way as fully insured plans. The only difference is who pays the claims.
Why does my insurance card say self-insured?
If your insurance card says that your plan is self-insured, it means that your employer pays for your medical care. This all happens behind the scenes, though. You probably still have an insurance company that handles the details of your coverage and claims. It's just that when you file a claim, the money that pays for your medical care comes from your employer, not from the health insurance company.
Sources
Sources for this article include the 2024 KFF Employer Health Benefits survey and the Employee Benefit Research Institute (EBRI).
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