How Partial Self Funding is Different from Fully Insured Programs

Most companies fund employee health plans through fully insured programs. At its core, partial self-funding is simply a different way to finance the same coverage for your employees.

How Self-Funding Works

Whether you are fully insured or partially self-insured, an underwriter estimates claims for the coming year for your group based on claims history and other standard processes.

In a fully insured plan, estimated annual claims, risk charges and administrative costs are spread out over 12 roughly equal payments. If you spend more than what was estimated in claims, the insurance company pays the excess. Plus, your rates are likely to increase quite a bit the next year.

If your claims are less than forecasted, the insurance company pockets the leftover “unspent” premiums as additional profit. In effect, if your employees are healthy and don’t use the services as much as planned, you lose from a financial perspective.

If you can encourage your employees to become healthier and/or use the plan more wisely, you should benefit from that . . . today you don’t.

The chart below shows how fully funded and partially self funded healthcare is virtually the same:

Self Funded

Fully Funded

Claims Estimates
Determined by an underwriter based on history and guidelines.



Risk Charges/Pool Charge
These are charges to cover the risk the insurance company is taking.



Administrative Costs
These are cost for administering the plan, paying claims, customer service, ID cards, etc. LifeWell’s administrative costs are lower than traditional payors’.



The difference is that in a partially self funded program, if your claims are less than you expected, you keep your money.

If you are concerned about negative cash flows from high claims in a particular month, you can add a feature where the insurance company pays you before you pay the claim.