Self-Insured vs Fully Insured

Difference Between Self-Insured and Fully Insured

Some of the key differences between a self-insured plan and a fully insured plan are – who pays for the members’ claims, who takes up the insurance risk, and who saves in case the claims are less than what was estimated. In a self-insured plan, the employer is responsible for the members’ claims as it assumes the insurance risk and it also saves in case of lower claims. On the other hand, is a fully insured plan, the responsibility of members’ claims as well as the insurance risk is transferred to the insurance carrier, who is benefited in case of lower claims.


Key Summary

  • Self-insured plans and fully insured plans differ in terms of who looks after the day-to-day performance of the health insurance plans. While the employer retains all the responsibilities in a self-insured plan, these responsibilities are transferred to the insurance carrier in a fully insured plan.
  • While the self-insured plans offer higher savings on premiums and better flexibility to choose the required benefits, the fully insured plans relieve the financial risk on the employer along with great implementation speed.
  • The self-insured plans are less regulated as compared to the fully insured plans.

What is Self-Insured?

The self-insured plan is also known as a self-funded plan as the employer is responsible for paying the medical claims and operating the health insurance plans with the help of vendors, who are known as third-party administrators (TPA). Basically, the employer chooses a self-insured health plan as it can result in significant savings on premiums. But it is important to note that a self-insured plan exposes the employer to a major risk in case the claims are much higher than the estimation. However, the employer can limit this risk by purchasing excess-loss or stop-loss insurance, which reimburses for the claims that go beyond a pre-determined level.

What is Fully Insured?

The fully insured plan is the traditional model of insurance where the third-party insurance carrier assumes the financial risk to pay for the members’ claims in exchange for the premiums paid to them. Basically, the employer pays the premium for the given year, which is decided at the start of that year based on the number of members covered in the plan. During a year, the premiums change only when the number of members covered in the plan change. The insurance carrier pays the medical claims as per the covered benefits of the policies in exchange for the premiums received from the employer.

Self Insured vs Fully Insured Infographics

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Comparative Table – Self Insured vs Fully Insured

Particulars Self Insured Fully Insured
Implementation Speed Since it involves scrutiny by multiple third-party vendors, it takes longer to implement. It is relatively fast as the insurance carrier is wholly responsible for the insurance plan.
Savings It results in higher savings as it doesn’t pay for the insurer’s profit, flexibility to choose limited benefits, and has lower admin costs. The premiums are usually higher as the financial and insurance risk is passed on to the insurer.
Flexibility to Choose Benefits The employer has better control of the benefits required as part of the health plans. The ability of the employer to alter the benefits may be limited.
Cash Flow The medical claims are paid as and when they occur. This can be healthy for the employer’s cash flow as long as the claims don’t exceed the expectations. The employer has to pay a fixed monthly premium to the insurance carrier irrespective of the level of member claims.
Financial Risk The employer retains the financial risk arising out of claims much higher than expectations. The financial risk related to the payment of medical claims is transferred to the insurance carrier.
Regulation The benefits are not regulated by any designated body. The offered benefits are regulated by the state administration.

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Self-Insured vs Fully Insured