In an article for TLNT, RxBenefits’ Chief Client Officer, Nathan White, weighs the pros and cons of fully insured vs. self-insured benefits and discusses how to evaluate whether employers should make the switch to self-funding. The following is a brief excerpt; you can read the full article here.
The Pros and Cons of Going Fully-Insured
Knowing whether to broach this subject with your executive team depends first and foremost on your organization’s tolerance for risk.
Suppose your CFO absolutely must know in advance exactly how much your employee health and pharmacy benefits will cost at the end of the year. In that case, it may be necessary to pay a substantial, albeit predictable, monthly premium to a health plan as part of a fully-insured benefits strategy.
In a fully-insured arrangement, you’ll contract with a medical carrier that bundles together all your medical and pharmacy benefits vendors and services. Regardless of what unfolds, your organization’s costs for the current year are fixed. While this approach may feel more comfortable and safe, the status quo has inherent risks.
- The cost of premiums for fully-insured plans and their members is very high. If your employee population is healthy or doesn’t use much healthcare or medication during the plan year, your organization will have spent a significant sum of money it can’t recoup.
- In a catch-22, if your plan’s costs exceed what the health plan’s underwriters modeled for the year, hefty rate hikes are inevitable, making renewal negotiations tedious.
- In addition to high fixed costs, fully-insured arrangements provide few, if any, options to tailor plan design, coverage, and provider networks for your members or adapt to meet new healthcare or business challenges as they arise (think COVID-19).