MRIoA receives varying types of reviews; whether they are fully insured, self funded, state, and/or federal reviews, it has come to our attention that it may serve our clients better to truly understand the distinction between fully insured and self-funded plans.
So what exactly is the difference between a fully insured and a self-funded plan? Depending who you ask, you’re likely to get several varying answers because the differentiation may seem obvious, but people will likely be unable to pinpoint the exact dissimilarity. In fact, it is rather simple, which will be explained fully below.
A plan is fully insured when an employer contracts with an insurance company to provide benefits and cover the employees and dependents. In order to determine whether the participant’s plan is fully insured, it is important to determine whether the employer is directly contracted with an insurance company rather than through a third party administrator. If the employer is directly contracted with an insurance company i.e., the employer pays all or part of the premium to the insurer and the insurer pays the claims from the pool of premiums it collects from the participants, the plan is fully insured. As where, if the employer is contracted through a third party administrator, the process may seem the same however the third party administrator is managing the funds pooled by the employer directly, as the premiums are paid to the company, and therefore the plan is self-funded. Another important factor of fully insured plans is that they are subject to state regulations and therefore the review process is affected by state-specific guidelines pertaining to review level, turn-around time, etc.
A plan is self-funded when an employer assumes the responsibility and risk for payment of the employees’ and dependents’ claims. When an employer decides to provide healthcare benefits to its employees it is taking on the obligation to pay claims as though a healthcare company would. Most commonly an employer will contract with a third party administrator to perform all administrative tasks in relation to claim services. While self-funded plans are generally not subject to any state guidelines, in most instances they are subject to the federal Employee Retirement Income Security Act (ERISA), as they defer to the employer’s payment of the claims versus the insurance provider. However, there are some examples of self-funded plans that are exempt from ERISA, such as plans funded by the government and/or religious organizations.
Please feel free to call MRIoA Regulatory Compliance with any further questions relating to various plan types.
Lindsay McCrory, Regulatory Compliance Coordinator