“Fully-Insured” vs. “Self-Insured”: What is the Difference?
When you buy your own insurance on the open market, in effect, you are paying someone else (an insurance company) to take on the risk that they will pay out more in benefits than they collect from you in premiums. This is known as being “fully-insured” or “fully-funded.” Alternatively, if you decide to assume the risk yourself – i.e., to save your premium dollars and use them to pay your health care bills on your own – you are considered “self-insured” or “self-funded.”
MSU self-insures all of the medical plans we offer. This means we assume the risk for every dollar of health care expense our employees and their families incur. We use the dollars collected through contributions (MSU’s contributions and your payroll contributions toward your coverage election) and we pay employees’ claims and the administration costs of the plans with this money. We also share in costs with employees at the point of care, through the plan’s benefit features (e.g., coinsurance and copayments).
Self-insuring our medical plans benefits MSU and our employees in many ways:
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Our benefit dollars go toward benefits. Built into the cost of any insurance policy is the insurer’s profit. When we self-insure, we eliminate the middleman – the insurer – and its built-in profit. Though third-party insurers administer our plans, they do so on a fee-for-service basis; they take no financial risk for paying our claims. And since MSU is not making a profit by providing health insurance coverage to you, every dollar of your and MSU’s contributions are used to pay claims and the administrative expenses for our plans.
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We have more flexibility. When we self-insure our plans, MSU, and not an insurance company, decides how our plans work. This provides us with more flexibility in designing our plans (e.g., deciding on copayment and coinsurance levels) and in contracting with the plans’ networks.
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We have more control. Self-insured plans are subject to federal regulations, while fully-insured plans are regulated by the state in which the plan operates. This exempts MSU from providing for state-mandated benefits in our plans (which can be costly) and from paying state-mandated taxes on health care premiums (an additional expense for the plans).
