WHAT IS HEALTH INSURANCE?
A Health Insurance is a way to pay for Health Care. It protects you from paying the full costs of medical services when you’re injured or sick. Just like care insurance or home insurance, you choose a plan and agree to pay a certain rate, or premium, each month.
Fully Funded Health Insurance
A fully-insured health plan is the more traditional way to structure an employer-sponsored health plan. With a fully-insured health plan:
- The company pays a premium to the insurance carrier.
- The premium rates are fixed for a year, based on the number of employees enrolled in the plan each month.
- The monthly premium only changes during the year if the number of enrolled employees in the plan changes.
- The insurance carrier collects the premiums and pays the health care claims based on the coverage benefits outlined in the policy purchased.
The covered persons (employees and dependents) are responsible to pay any deductible amounts or co-payments required for covered services under the policy.
Self-Funded Health Insurance
With a self-insured (self-funded) health plan, employers (usually larger) operate their own health plan as opposed to purchasing a fully-insured plan from an insurance carrier. Employers choose to self-insure because it allows them to save the profit margin that an insurance company adds to its premium for a fully-insured plan. However, self-insuring exposes the company to much larger risk in the event that more claims than expected must be paid. With a self-funded health plan:
- There are two main costs to consider: fixed costs and variable costs.
- The fixed costs include administrative fees, any stop-loss premiums, and any other set fees charged per employee. These costs are billed monthly by the TPA or carrier, and are charged based on plan enrollment.
- The variable costs include payment of health care claims. These costs vary from month to month based on health care use by covered persons (eg: employees and dependents).
To limit risk, some employers use stop-loss or excess-loss insurance which reimburses the employer for claims that exceed a predetermined level. This coverage can be purchased to cover catastrophic claims on one covered person (specific coverage) or to cover claims that significantly exceed the expected level for the group of covered persons (aggregate coverage).
For further questions, call our offices at 210-949-0002 to speak with a representative.