There are 2 types of insurance depending on how it is being funded or who pays for the medical services of the providers. These are the fully insured and self insured plans. There are benefits and some disadvantages for both of them. Let me share to you me views on both types of plans based on my experience in the industry.
Let’s start with the fully insured plans. This is also called fully funded plans and it means that the insurance company is the one paying the providers for the services they render to the plan holders. The plan holders usually just have to pay the premium (monthly payments or may even receive it free from a benefactor) and every time he/she goes to a participating provider for an approved service, the insurance company pays the provider in full or the higher percentage depending on the contract.
Here’s an example. Let’s say I have a fully insured individual plan and I have met my entire out of pocket limit (deductibles/coinsurance) so I am now covered at 100%. When I go to a hospital to have surgery and it has been approved by the insurance company, I won’t have to pay anything. Now, since I have a fully funded plan, the insurance company would have to pay the hospital for the fees.
The main disadvantage of this type of plan is that the benefits are usually pre-determined. For example, I have an HMO and if it’s a fully funded plan, I’d only get the usual HMO benefits from that insurance company as well as any other plan holder of the same type of plan that is also fully insured. You’ll understand more in a bit after I’ve explained the self-insured plans.
As for self insured plans, these are the plans wherein the owner of the plan pays the medical providers themselves instead of the insurance company. These are usually used by big companies. To make it easier to understand, let me give another example. Let’s say I’m part of Company A and we have a self-insured HMO and we are covered 100%. Now, when I go to the hospital for a surgery that’s been approved, the one who pays the medical provider is Company A. This is very beneficial to the employees.
You’re probably wondering, why get a plan from the insurance company if the company you’re working for pays for the services themselves? And yes, there are a lot of companies that have medical insurance as part of the benefits for their employees and it’s free. The role of the insurance company in this case would be for administrative services. This means that the insurance company will be the ones who will handle all the transactions (paper works, approvals, processing) and they will take care of the money of the company.
Let’s take a look at it another way. Let’s say Company A has a self insured medical plan for their employees. They’d give (or deposit) $500,000 to the insurance company. When an employee uses his/her medical benefit, the insurance company will take care of the paper works and necessary processes to approve the service and then they will pay the hospital or the doctor using the money that Company A gave. It’s like Company A telling the insurance company “Here’s the funding for our employees’ medical coverage. You take care of the processing.” Of course, the insurance company will be paid by Company A as well for the processing services.
One main difference is that self insured plans can be more customized depending on the company. Company A can tell the insurance company that or all their employees should be covered at a 100% for approved inpatient surgeries and 90% for approved outpatient surgeries. For fully funded plans, especially individual plans, they would have to pay a much higher premium if they want customized or added benefits to their plans.
The disadvantage of a self insured plan is basically its cost and complexity. It is costly for the company especially if they have thousands of employees although most of them won’t care much as long as their employees are receiving medical benefits. And since it is customized, it is prone to a lot of mistakes and incorrectly approved benefits. Everyone commits mistakes and the insurance company may approve something that Company A does not approve of. Company A would be forced to pay for the services but may penalize the insurance.
Either way, it still is best to have medical insurance although costs are probably higher due to the world economic situation. It still depends on your choice on what type of plan you want to have based on funding. If you’re just an individual, go for the basic fully funded plans. It would be pointless if you self insure (may be with the exception of discounts) since you’ll be paying the providers anyway. If you’re a company, having a self insured medical plan for your employees will be very beneficial to your employees and of course, owners and managers are part of it as well.