Self Funding Health Insurance

In addition to policy types there are also different ways for an employer to fund a group health policy.  Essentially, the employer may elect to take some of the risk. The insurance company then gives the employer protection against a maximum amount of risk, providing a stop-loss if the claims get to high. The result is that the amount an employer will pay for the insurance is variable, with a minimum and a maximum amount. There are three categories of funding for group health insurance plans.

Fully Funded:  This is the most common form of funding.  In this instance the premium is fixed and all medical costs are paid for by either the insurance company or the insured.

Partially Self Funded:  In this instance the insurance company gives the employer a minimum and a maximum premium.  The employers actual premium will fall somewhere in-between based upon a percentage of the actual claims.  The insurance company also takes on the responsibility of hiring a claims administrator and supervises the enrollment of the group amongst other procedural matters.

Fully Self Funded:  In this case the employer pays all of the claims until hitting a reinsurance limit.  The employer purchases this reinsurance from an insurance company.  However, the insurance company does not play any role in administration. The employer is responsible for hiring a claims administrator and handling all procedural matters.