fully-insured health plan

What is a fully-insured health plan?

A fully-insured health plan refers to a group health plan in which the employer or association purchases health insurance from a commercial insurer in order to provide coverage for its employees or association members.

The employer pays premiums to the insurer (some of which are passed on to the employees via payroll deduction) in trade for the insurer taking on the financial risk associated with providing coverage and administering the plan. If an employee has a medical claim, the insurer – not the employer – is responsible for paying the bills.

A fully-insured plan is the opposite of a self-insured health plan, in which the employer’s money is used to pay claims and an insurance company simply administers the coverage.

Fully-insured health plans are subject to both state and federal insurance regulations, whereas self-insured health plans are only subject to federal regulations. State insurance rules do not apply to them.

(Self-insured plans are federally regulated under ERISA. They are also subject to various aspects of various other federal laws, such as the ACA, HIPAA, and COBRA. But the rules under those laws can be different for self-insured versus fully-insured plans. For example, ACA rules for self-insured plans do not require coverage of essential health benefits — even if it’s a small group — nor do the ACA’s medical loss ratio requirements apply to self-insured plans.)

Most small employers that offer health coverage choose a fully-insured plan (or an ICHRA), although the percentage of self-insured small and medium businesses is rising.¹ (some are entirely self-insured while others opt to purchase stop-loss insurance from a commercial insurer – to cover catastrophic losses – to supplement the self-insured plan). Larger groups are more likely to self-insure.²