How To Structure Your Employees’ Health Insurance for the Best Results
Whether you are a large applicable employer or a small business owner, you should familiarize yourself with employer-sponsored health plan options. There are two major types of group health plans that employers usually adopt. Each structure has its pros and cons, it just depends on what your business finds to be more cost effective.
Fully Insured
This is the more traditional option for employers. In this method of structuring health insurance, the employer uses the services of a health insurance company or carrier. Therefore, they deal with very little of their health insurance in-house.
Self-Insured
Self-insured employer-sponsored health plans are more flexible and customizable than the fully-insured method. With this option the employer handles all of their health insurance in-house without the services of an insurance carrier.
There are three major ways in which these plans differ…
Which Has More Risk?
The self-insured method takes much more responsibility and risk by avoiding the services of a health insurance carrier. However, they are willing to do this because this method can help them achieve better profit margins.
Because the business is not paying for these services, they avoid higher premiums. Although, they will have to handle their own claims which could end up costing more than they projected for a given period.
With a fully-insured group health plan, the business takes on little risk. The insurance carrier that they choose will handle all of the claims that their employees submit and collect their monthly premiums as well.
Who Handles The Administrative Work?
We have already covered who is handling the bulk of a fully-insured plan. The chosen health insurance carrier will be greatly in change of the administrative needs of the business.
So, who handles the administrative work for a business who has chosen a self-insured, or self-funded structure? This responsibility can either be shouldered by the human resource department or a third party administrator. This outside administrative party is called a TPA. A TPA is not an entity that bears any risk, this is how they differ from a health insurance company.
Is Customization Available?
The fully-insured option may seem like the safer option at this point, however if you have a vibrant cash flow and you want more customization as an employer, then going the self-insured route may actually be better for you in the long run.
An employer can mitigate the extra risk of a self-funded option by purchasing stop loss insurance. This is also called excess loss insurance. While an employer can make projections for what dollar amount they will be paying out for insurance claims, it is never guaranteed to be accurate.
If there is an unexpectedly high amount paid out in claims, this could cause cash flow issues for a business of any size. This insurance allows employers to be reimbursed after their payouts exceed a certain cash amount.
If you choose to structure your employees’ healthcare using the fully insured method, you will assume little risk and administrative responsibility, but, of course, there are some downsides. Each year your business will have to renegotiate the terms and cost of your healthcare. Higher premiums are always a trend with this structure.
Of course, a key component to making either of these group health plans work for your business is by keeping the ACA guidelines in mind. If your health insurance carrier or TPA doesn’t offer these services, then you may find yourself in trouble with the IRS. ACAwise exists to solve this problem for you! We are your full service ACA Compliance solution!
