Self Funded Health Plan Example
Fully Insured Company
ABC Company is fully insured with Fully Insured Carrier and pays a premium of $1,200,000.00 annually for their health insurance plan. Claims experience shows that ABC Company only had $1,000,000 in claims and admin expenses. The Fully Insured Carrier keeps $200,000 in profits.
Self Funded Company
ABC Company's group health insurance is self funded with a Third Party Administrator with reinsurance. ABC Company’s potential worst case scenario for the year is $1,600,000 annually. ABC company pays $20,000 a month in fixed premium costs and holds in claims reserves $1,360,000 for potential claims. The $1,360,000 is retained by ABC Company and it is theirs to utilize as they see fit until claims materialize. At the end of the year ABC Company’s claims are $1,000,000. ABC Company retains the $360,000 it reserved in a worst case scenario. ABC Company realizes a $200,000 savings by being partially Self Funded versus Fully Insured - (administration costs for third party would also be deducted from savings).
The employer is protected by three facets of insurance protection, the specific deductible or (Specific Stop Loss) which protects against any one person claims exceeding a specified amount, the integrated aggregate which protects against any excess monthly claims (so the employer may budget and allocate only the conventional equivalent premium each month, then not have to worry about an adverse month when more than usual claims are presented), and an annual aggregate reinsurance to protect against claims greater than the conventional equivalent.