Fully Insured Programs

What You Need To Know About Fully Insured Plans…

There is a general misconception in the marketplace that a fully insured contract means that the actual claims experience of the plan does not impact the renewal underwriting at year-end. This is more correctly referred to as a non-experience rated or community-rated contract. With the exception of some HMOs and very small employers, the actual claims experience is utilized in determining renewal rates. A credibility factor is employed to determine the (weight) of the actual experience in the underwriting formula. The following are additional characteristics of a fully insured program.

The annual premium under a fully insured plan is established at the outset and the employer is obligated to pay this premium in full on a monthly basis. Regardless of the amount of the claim, the insurance carrier is responsible for payment of claims. Interestingly, if claims paid for the year are less than premium paid for the same year, the insurance carrier keeps the difference. So, in essence, under this arrangement, an employer is actually funding the insurance carriers reserves. If, on the other hand, claims are greater than the premiums paid for the year, the insurance carrier absorbs all losses.

One of the major disadvantages with fully insured plans is that they are designed to be easily used and thus often tend to keep employers in the dark about their own health plans. In addition, fully insured plans are state mandated and tend to very inflexible. The result typically ends in higher, unmanageable costs.

In addition:

•  All Premiums under a fully insured plan are subject to state premium tax.

•  Fully insured plans are on a non-component-underwriting format, with the managed care, reinsurance and administration provided through the writing company. If in the future, one component needs to be replaced, the entire package has to be moved.

For more information, please contact us online or call us at 1-800-223-9941.