What Is a Fully Insured Health Plan?

A fully insured health plan is a common arrangement where employers provide health benefits by purchasing coverage from an insurance carrier. The insurer assumes the financial risk for employee healthcare claims. Employers pay a fixed premium, and the insurer is responsible for paying all eligible medical expenses incurred by covered employees. This approach offers a predictable cost structure, as the employer’s financial obligation is limited to these regular premium payments.

How Fully Insured Plans Operate

The employer selects a health plan and pays regular, fixed premiums to the insurance carrier. This payment transfers the financial risk of healthcare claims to the insurer.

The insurance carrier processes and pays all eligible healthcare claims for employees and their dependents. This includes managing provider networks, negotiating service rates, and ensuring regulatory compliance. The carrier handles direct payment to providers according to the policy’s terms.

With the insurer managing claims and compliance, employers experience a reduced administrative burden. This allows businesses to offer health coverage without needing extensive internal resources.

Key Elements of Fully Insured Coverage

Fully insured health plans come with pre-defined benefit packages established by the insurance carrier. These packages include deductibles, co-payments, and co-insurance. A deductible is the amount an individual must pay out-of-pocket before coverage begins. Co-payments are fixed amounts paid for specific services, while co-insurance is a percentage of the cost shared between the insured and the insurer after the deductible is met.

These plans also include an out-of-pocket maximum, which is the most an individual will have to pay for covered services in a policy year. Once this maximum is reached, the insurance carrier covers 100% of eligible costs for the remainder of the year. The insurance carrier is responsible for establishing and managing the network of healthcare providers, including hospitals, doctors, and specialists. They negotiate rates with these providers to control costs within the network.

Employers offering fully insured plans have less direct control over the specific design of the health plan compared to other funding models. The plan design, network choices, and premium rates are primarily determined by the insurance carrier. This structure simplifies the decision-making process for employers, as they choose from existing plan options rather than designing a plan from the ground up.

Financial Aspects for Employers

For employers, a significant financial aspect of fully insured plans is the predictability of costs. Premiums are typically calculated and fixed annually, based on factors such as the number of employees enrolled, their average age, the employee group’s health profile, and anticipated claims. This fixed monthly payment allows employers to budget for healthcare expenses with certainty, as their financial liability is capped at the premium amount.

Even if actual healthcare claims incurred by employees exceed the total premiums paid, the insurance carrier assumes that additional financial risk. This means the employer is not responsible for covering claims beyond the set premiums. However, if claims are lower than expected, the employer generally does not receive a refund of unused premium amounts.

The premium also incorporates administrative costs, risk charges to protect the carrier from unforeseen high claims, and applicable taxes. While offering cost predictability and reduced financial risk, fully insured plans can sometimes be more expensive overall than other funding models due to these built-in charges and the insurer’s profit margin. The average annual premium for employer-sponsored fully insured coverage can range significantly, with individual coverage costing approximately $8,431 per year and family coverage around $23,968 per year, though employers typically contribute a large portion of these costs.