Costly medical emergencies can occur without warning. That’s why providing healthcare coverage for every person in your organization is essential. To accomplish this, many organizations these days offer group health insurance plans as part of their employment packages. Typically, businesses partner with insurance agents to provide their employees with health insurance plans, but these funding mechanisms can vary considerably. We’ll explore the different types of health insurance plan funding in further detail so you can make the right choice for your organization.
Fully Funded Health Insurance Plans: Maximize Cost Certainty
This is the most traditional approach to funding an insurance plan. With a fully funded health insurance plan, the employer is responsible for covering all their employees’ insurance expenses. This type of plan generally allows employers to have more control over the options available to employees. Employees usually have a variety of choices within their employer’s plan and the employer typically has a comprehensive list of potential options. Fully funded health insurance plans usually cost more than what an employer could purchase elsewhere, but it provides employees with a comprehensive package that can also be an alluring benefit for maintaining top talent.
Self-Funded Health Insurance Plans: Prioritize Versatility
Some organizations prefer a more flexible approach. A self-funded health insurance plan lets the employer assume primary responsibility for the cost of employee coverage. Under this structure, an employer contracts with an insurance company to administer and provide the claims. The employer also puts monies into a fund to cover their employees’ medical claims. The employer and insurer then share the expenses and risks. Employers have the freedom to design the terms of the plan, giving them more control over the benefits and cost of the coverage.
Level-Funded Health Insurance Plans: Get the Best of Both Worlds
Many organizations, however, prefer a hybrid approach: a level-funded health insurance plan. The key feature of this option is that it offers predictable monthly costs for employers. Insurers design the premium to cover the expected claims expenses, and any unused funds at the end of the year revert to the employer or carry over to the next year. Unlike traditional self-funded plans where employers are responsible for paying all claims directly, level-funded plans provide a layer of protection through stop-loss insurance. This insurance kicks in when the total claims exceed a certain threshold, protecting the employer from catastrophic claims expenses.
Each of the different types of health insurance plan funding has its time and place. Your organization may be a good fit for a fully funded plan, or perhaps a hybrid or self-funded plan better meets your current needs. No matter which plan is in play, employers should also consider encouraging their employees to participate in health savings accounts to promote overall well-being. By providing these different funding options, employers can give their employees a diverse array of choices to meet their health insurance needs.