When business owners start their businesses, one major decision they are faced with is what kind of health insurance to offer their employees. Making the right choice can be particularly challenging for new businesses or small companies with less capital on hand.
Self-Funded vs Fully Insured
There are two possible routes to providing coverage. With the fully insured option, an insurance company provides the coverage and the business pays the carrier a monthly premium based on the number of employees enrolled. In a self-funded plan, it is the business itself that provides the coverage.
Advantages and Disadvantages of Fully Funded Insurance
Fully funded insurance is convenient. The premium rates are set for a year, and the insurance company handles all of the administrative tasks. Additionally, they are responsible for paying for any health claims that arise. The major disadvantage of using a health insurance provider is cost.
Advantages and Disadvantages of Self-Funded Insurance
Self-funded insurance puts control in the hands of the employer, who can determine plan coverage options. They are also less expensive because the company does not have to pay fees to the insurance carrier. On the other hand, there is risk and uncertainty involved in how much the business has to pay out in any given month.
When comparing self-funded vs fully insured approaches to health insurance, each has its own set of advantages and disadvantages. Small businesses may see value in the cost savings and flexibility allowed in the self-funded option, as long as they are prepared for the extra work and risks involved.