What distinguishes Fully Insured plans from Self-Insured plans?

The distinction between Fully Insured plans and Self-Insured plans primarily lies in who retains the financial risk associated with the health benefits provided. In Fully Insured plans, insurance companies take on the risk of providing healthcare coverage. This means that the employer pays a predetermined premium to the insurance company, which in turn is responsible for paying covered claims. The employer does not directly handle the costs or risks of individual healthcare claims beyond the fixed premium payments.

On the other hand, in Self-Insured plans, the employer assumes the financial risk for providing healthcare benefits to employees. Instead of paying premiums to an insurance company, the employer sets aside funds to pay for actual claims. This approach can give the employer more control over plan design and costs, but it also carries more financial risk.

Understanding this core principle helps clarify the nature of risk management in both types of plans. Self-Insured plans can vary in coverage and may not be limited to catastrophic events; they can be designed to cover a wide array of health services depending on what the employer chooses to include.