Fully Insured

Self-Funded

Paid Claims

The paid claims will not change perceivably under either program.

The paid claims may be somewhat lower but will not change perceivably under either program.

Claim Reserves

The insurer has a contractual obligation to pay claims incurred within given liability period. Only a part of these claims will be paid within that given period. The insurer must set aside ad-equate reserves to provide for both incurred but not reported claims and "in process but not completed" claims.

It is not necessary to set aside funds for the purpose of claim reserves as the self-funded plan will pay valid expenses as received.

Inflation

Inflation in medical health care cost continues to climb at a highly accelerated pace (far more rapidly than the balance of the Consumer Price Index). However, in a conventional insured program, the insurer projects an evaluation of the medical inflation and requires the group to prepay this inflation.

To date, no effective method has been found to curtail medical inflation. However, under the self-funded approach, the employer does not prepay an estimation of this factor, but only pays for the actual inflation.

Profit

Profit is an essential item. No insurance company can grow or, in fact, exist without it.

The employer is providing an employee health benefit program. This is not the employer's means of making a living, and he or she has not designed the program to make a profit.

Premium Tax

It is necessary that premium tax be paid. (Usually amounting to about 2.5% of total premium.)

In most states, premium tax is not currently applicable under the self-funded program.

Overhead

All insurance companies must consider the cost of equipment, office space and employees in general. The specific cost of the group's plan and claim administration is directly considered.

The employer generally does not have equipment, office space or employees designated for benefit purposes. However, the success of any self-insured program hinges on plan and claim administration, and a qualified third party administration should generally be engaged. The fee charged for their services could be considered a form of overhead.